Last April, Georgia lawmakers passed HB 1437, a tax reform package to replace the state’s progressive income tax with a flat tax beginning in 2024. What does this mean for Georgia taxpayers?
In less than a year, Georgia individuals, families, and businesses will find themselves paying lower taxes. In this blog, we’ll look into the details of Georgia’s income tax cut and breakdown everything you need to know about the Georgia flat tax ahead of next year’s tax season.
What is considered a flat tax?
First, what is a flat tax, and what makes it different from a progressive income tax?
Until the new Georgia tax reform package goes into effect in 2024, the state of Georgia has a progressive income tax system, in which the more money your household or business takes in, the higher the tax bracket it falls into and the more you pay in taxes.
A flat income tax allows every taxpayer to pay the same percentage of their income, regardless of income. Think of it as similar to sales tax, in which a small portion of the cost of goods (4%, in Georgia’s case) is added to the bill, no matter how many goods one buys or how cheap or expensive they are.
Understanding the GA Tax Cut
From January 1, 2024, the flat tax in Georgia will start at 5.49% and continue to decrease by 0.1% over the following five years until it reaches 4.99% in 2029.
Let’s take a closer look at the reasons behind Georgia’s new flat tax:
One of the appeals of flat taxes is that it makes filing your taxes more straightforward and more predictable by eliminating the need to calculate tax brackets and streamlining deductions and exemptions.
For individuals and families, this could make tax filing less of a headache. For businesses, the Georgia flat tax could also make it easier to project revenue.
The Georgia flat tax is an effective income tax cut for all Georgians, saving money for both low-earners and high-earners. Due to how a flat tax works, high earners save more money than low earners, even though everybody is taxed at the same percentage.
For businesses choosing a state to operate in or expand into, the unique tax laws that vary from state to state play a significant role in making that decision.
Until recently, Georgia has been a relatively high-tax state compared to its neighbors. Most of Georgia’s neighboring states, such as Tennessee, North and South Carolina, and Florida, are already either income tax-free or maintain their own flat tax rate, so the new Georgia flat tax should make the state more attractive for businesses.
How will a tax cut in Georgia affect you?
Based on the above, you can see how the Georgia flat tax rate could affect you. Overall, the Georgia flat tax means that filing taxes should be easier, taxes will be lower for all Georgia residents, and businesses will have greater incentive to invest in the state and create jobs.
Georgia’s flat tax rate may have a massive impact on tax planning for individuals, families, and businesses. For example:
- It may be easier to calculate tax obligations and optimize tax liabilities.
- The flat tax will have fewer deductions, exemptions, and credits compared to a progressive tax, which can have a massive impact on how effective specific tax strategies will be in Georgia. Since the tax rate will remain constant regardless of the timing of income or expenses, certain strategies to accelerate or defer income to optimize tax liability may also decrease in effectiveness.
- The Georgia tax cut law, HB 1437, cuts most exemptions but increases personal exemption amounts beginning on January 1, 2024. In 2024, under the Georgia flat tax, single filers and heads of households can claim a deduction of $12,000. For married partners filing jointly, the exemption amount rises to $18,500; households can deduct $3,000 for dependents. These higher personal exemptions eliminate one quirk of Georgia’s previous tax law: the “marriage penalty” that often leads to married couples filing jointly owing more state taxes than single taxpayers.
- Simplified tax reporting and streamlined tax planning, with fewer deductions and exemptions, make accurate compliance and reporting even more essential to avoid penalties or potential audits.
Overall, there’s plenty of reason to be hopeful about tax law changes that aim to reduce your tax burden. But change, whether or not for the better, is not always easy. If you have any questions about how Georgia’s upcoming flat tax will impact you for next year’s tax season, it’s better to ask a trusted tax professional sooner rather than later.
Ahead of the change in tax law, a trusted tax professional can help you:
- Understand the impact of the new Georgia flat tax on your tax situation
- Identify where changes in tax law may affect your tax liability
- Adjust your financial and investment strategies
- Ensure that you are making the most of the personal exemptions available to you or your household
- Maintain documentation to ensure compliance and prevent penalties or potential audits
We may only be about halfway through 2023, but 2024 will be upon us sooner than we expect, so now’s a good time to prepare for Georgia’s tax law changes.
What does the Georgia flat tax law mean for individuals with current tax issues?
Changes in state tax law can impact any current tax issues you are struggling with, such as unresolved tax liabilities or ongoing audits. New tax laws are unlikely to make your problems go away altogether, though, so it’s important to reach out to professional tax attorneys who can help you understand how the new Georgia tax cut might affect your existing tax liabilities.
At Wiggam Law, our tax attorneys are dedicated to getting you out of the mess so you can move on and regain control of your life. From IRS and state collection actions to audits and penalties, our tax attorneys treat you like family and put their all into helping you solve complex tax resolution matters.