Georgia Tax Update: One-Time Refunds on the Way?

Georgia taxpayers may be getting an extra refund soon if the state legislature’s latest proposal passes muster. Under H.B. 1302, taxpayers who filed returns in 2020 and 2021 would receive a one-time refund between $250 and $500.

About H.B. 1302

In January 2022, Governor Kemp proposed issuing refunds to Georgia taxpayers. The proposal comes from Georgia’s $2.2 billion budget surplus from 2021.

Why such a surplus? Georgia lawmakers intentionally cut ten percent from state spending when the summer 2020 budget was approved.  At that time, COVID-19 cases were high, businesses were only just starting to partially reopen, and many state-mandated gathering limits were still in place. Elected officials wanted to hedge against a potential loss in state revenue.

Georgia’s education budget was restored to its full allocation later, but other agencies were not.  The result is an overfunded state coffer. Governor Kemp, in a public address, proposed using the extra funds to give taxpayers a break.

The default alternative would be allocating the entire budget surplus to Georgia’s Revenue Shortfall Reserve (RSR), or rainy-day fund, which is supported mostly through year-end budget surpluses. Under state law, the governor can reappropriate funds from RSR if the total balance remains at least at four percent of prior year revenues. Based on the FY 2021 numbers, the amount that can be redistributed is $1.7 billion.

The proposed refunds would total about $1.6 billion.

Georgia’s Budget Divide

The proposal is only one piece of the puzzle. While some lawmakers are advocating for the refunds, others point to state agencies that are still underfunded, like pre-K, secondary, post-secondary education, health services, and two state departments: Labor and Human Services.

Georgia’s $27.3 billion budget, which is in effect from July 1, 2021, through June 30, 2022, is an $849 billion decrease from FY 2020. According to the partisan Georgia Budget & Policy Institute, the state’s main response to deal with COVID-19 was to cut its budget instead of relying more on federal aid, raising taxes, and/or eliminating tax loopholes.

Proposal supporters argue that excess funds should be returned to taxpayers. Opponents say the money should be reallocated to underfunded agencies. A consideration not often discussed is that while Georgia does indeed have a substantial “rainy day” fund, some of the money was generated from one-time activities rather than recurring revenues.

Tax Implications of H.B. 1302

H.B. 1302 would amend Chapter 7 of Title 48 related to income taxes. The refunds, if enacted, would function as a state tax credit. To qualify, Georgia residents must have timely filed their state income tax returns by the due date, including extensions, for both 2020 and 2021

Nonresidents, individuals who can be claimed as dependents for either year and estates and trusts do not qualify. Eligible taxpayers would automatically receive the one-time payment after filing the 2021 tax return.

The tax credit would be the lesser or equal of either:

• 2020 individual income tax liability or Line 4 of the 2020 Georgia Form 500EZ

Or

• $250 (single or married filing separately)
• $375 (head of household)
• $500 (married filing jointly)

The refund amount would be based off the taxpayer’s filing status in 2020.

Part-time Georgia residents would see a prorated amount based on the amount of taxable income attributed to Georgia. Refund amounts are not subject to state income tax.

Taxpayers who owe money to the state might not see a refund, even if they’re otherwise eligible. The draft legislation states that “provided that such refund shall first be credited against any outstanding liability existing at the time the refund provided for in this Code section is to be issued.”

Other Potential Georgia Tax Changes

Another tax refund could potentially occur in 2023; legislative developments are ongoing.

In the meantime, Governor Kemp also plans to temporarily suspend the state’s motor fuel taxes; H.B. 304 has passed a House subcommittee vote. If the entire legislature casts a majority vote, the bill will go into effect immediately and last until May 31, 2022.

Another piece of legislation, H.B. 1437, would amend other taxes as follows:

• The top income tax rate would decrease from 5.75 percent to 5.25 percent and the previous six tax brackets would be consolidated into one flat rate.
• All state tax deductions, except for charitable contributions and the dependent deduction, would be eliminated, while the personal exemption would be increased substantially.
• The first $30,000 in state income would be non-taxable for a family of four.
• Retiree exemptions would remain; for example, excluding up to $65,000 in nonwork retirement income from state income taxes.

The changes wouldn’t take effect until 2024 and the debate has only just begun. The Tax Foundation’s analysis indicates that if H.B. 1437 would pass today as written, the state’s tax climate indices for both businesses and individuals would significantly improve.

Contact Us

The potential opportunity to receive a state tax refund is welcome news for many Atlanta residents. For the time being the legislation still has a few hurdles to overcome before the Governor can sign it. If you have questions about the information outlined above or need assistance with a tax planning or compliance issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.