Georgia Income Tax Decrease
How do you feel about keeping a little bit of extra money in your pocket each year?
Well, if you like that idea, then you will like Bill HB 918.
HB 918 was introduced earlier this year with the intent of reducing tax rates for wage earners in the Peach State. The bill gradually reduces the top individual and corporate income tax rate down from 6 percent to 5.5 percent by 2020. Standard deductions will also double for all taxpayers:
- $4,600 for single filers
- $3,000 for married filing separately
- $6,000 for joint filers
Why the Big Change?
Our neighbor to the South has a lot to offer beyond Disney World. Florida is the second fastest growing state in the nation and offers a 0% income tax rate. For most American families, that’s the difference between paying your cell phone bill and being late.
Georgia is surrounded by states with low or no individual income tax burdens, and this change will help boost the state’s competitiveness.
- Tennessee only taxes interest and dividend income at a rate of 3 percent
- North Carolina levies a rate of 5.499 percent
- Alabama is at 5 percent
- South Carolina is the only neighboring state with a higher rate than Georgia at 7 percent
What is most misleading is that only those in the highest tax bracket pay the 6% income tax rate—and that highest tax bracket starts at just $7,000.00!
Impact on Individuals and Businesses
Lowering the individual income tax rate not only provides relief for individual taxpayers in Georgia, but also for businesses.
Many businesses pay individual income taxes. These include:
- Sole proprietorships
- Partnerships
- S corporations
These are structured as pass-through businesses, which pay taxes through the individual income tax code, not the corporate income tax. Lowering the rate benefits both individuals and businesses in the state.
Competitive Edge for Corporate Investment
The reduction of the corporate income tax rate from 6 percent to 5.5 percent will help Georgia compete for corporate investment.
- Florida, South Carolina, and North Carolina all levy a lower corporate rate than Georgia
- North Carolina, in particular, is tough competition due to its pro-growth tax code
This change is likely to impact major business decisions, including projects like Amazon’s second headquarters (HQ2).
Legislative Progress
The Georgia bill passed the House on Thursday, 134 to 36. Similar legislation has previously passed in the Senate, and the governor supports the bill, so it doesn’t appear that it will face many obstacles before final passage.
Frequently Asked Questions
What is Georgia’s HB 918 tax bill?
HB 918 is a legislative bill passed in Georgia aimed at gradually reducing the state’s top individual and corporate income tax rates from 6% to 5.5% by 2020. It also increases the standard deduction for taxpayers, effectively lowering the taxable income base for most individuals.
Why did Georgia reduce its income tax rates?
Georgia reduced its income tax rates to remain competitive with neighboring states, many of which have lower or no income taxes. The state aims to prevent losing residents and businesses to nearby states like Florida and North Carolina by offering a more attractive tax environment.
Who benefits from the tax cuts in Georgia?
Both individual taxpayers and businesses benefit from the tax cuts. Pass-through entities such as sole proprietorships, partnerships, and S corporations, which pay taxes via individual income tax, see direct relief. Corporations also benefit from a reduced corporate tax rate.
How does this tax change compare to surrounding states?
Compared to its neighbors, Georgia’s tax rate becomes more competitive:
- Florida has no income tax
- Tennessee taxes only dividends and interest at 3%
- North Carolina and Alabama have rates under 5.5%
- South Carolina remains higher at 7%
Georgia’s changes place it closer to the regional average, enhancing its economic appeal.
What is the legislative status of HB 918?
As of the article’s writing, HB 918 had passed the Georgia House with a strong majority and previously cleared the Senate. With support from the governor, the bill was expected to become law without significant resistance.