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Georgia Accelerates Multi-year Tax Cut Plan

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In 2022, the Georgia General Assembly enacted a tax cut plan that adopted a flat individual income tax rate which phases down from 5.75% to 4.99% over several years. Under the bill, HB 1437, the phase-down was to begin in 2024 when the rate would go to 5.49% if the state met its revenue goals. Now, Georgia’s Governor has signed several new bills that accelerate the reduction by setting the tax year 2024 rate to 5.39% instead of 5.49% and match the corporate tax rate to the individual rates. According to Governor Kemp, this change is estimated to save Georgia taxpayers $1.1 billion in 2024 and approximately $3 billion over the next 10 years.

How It Works

The rate is reduced by .10% each year with a corresponding increase in the personal exemption, which replaced the Georgia standard deduction under the 2022 law. Rate reductions for each year are as follows:

Tax YearTax RatePersonal Exemption for SinglesPersonal Exemption for Married Taxpayers
20245.39%$12,000$18,500
20255.29%$12,000$18,500
20265.19%$12,000$20,000
20275.09%$12,000$20,000
20284.99%$12,000$22,000
20294.99%$12,000$22,000
20304.99%$12,000$24,000
Note that the new flat corporate income tax rate will keep falling along with the personal income tax rate until reaching 4.99%.

Budget Trigger Could Delay Reduction

The 2022 law also included a trigger mechanism that can delay the tax rate reductions for one year if the State’s revenue targets are not met. Under this rule, the rate reductions will be delayed one year if:

  • The Governor’s revenue estimate for the succeeding fiscal year is not at least 3% above the revenue estimate for the current fiscal year;
  • The prior fiscal year’s net revenue collection was not higher than each of the preceding three* fiscal years’ net tax revenue collection; and
  • The Revenue Shortfall Reserve (RSR) does not exceed the amount of the decrease in state revenue projected to occur as a result of the prospective reduction in the tax rates set to occur the following year.

*The 2022 bill measured five fiscal years, but HB 1015 reduced it to three years.

This means that the state must maintain overall revenue growth of at least 3% annually or the rate reductions will be paused for one year. The Georgia Office of Planning and Budget is charged with making this determination by December 1 each year and reporting it to key state legislators. Once the tax rate reaches 4.99%, the revenue determination will no longer be required to maintain that rate.

Dependent Exemption Also Upped

Another measure signed by Kemp, HB 1021, increases the Georgia dependent exemption by 33%, from $3,000 to $4,000 per child, effective for tax year 2024. The dependent exemption is now also allowed for unborn children.

Conclusion

The change in tax rates to a declining flat rate with a higher personal exemption significantly lowers the state income tax burden on both individuals and corporations. The rate reduction continues as long as Georgia’s economy continues to grow and enough income is generated from other revenue sources, such as sales taxes, personal property taxes, gas taxes, etc. Once the tax rate reaches 4.99%, the General Assembly would have to pass legislation to raise the rates in the event of a revenue shortfall. It is a lot easier for legislators to vote to cut taxes than to raise them, so the 4.99% rate may be here to stay.

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