On May 4, 2021, Governor Kemp signed House Bill 149 into law. The new law makes Georgia the latest state to circumvent the $10,000 SALT deduction limitation that was established with the 2017 Tax Cuts and Jobs Act. The bill amends the Georgia tax code by allowing electing S-corporations and partnerships to pay Georgia state business income taxes at the entity level rather than passing-through to the owners.
Key Features for The Pass-through Entity:
- The election will be available for tax years beginning on or after January 1, 2022.
- This is an annual irrevocable election which must be made on or before the due date for filing the income tax return, including extensions. Therefore, elections can be made up to September 15 of the following tax year.
- S-corporations and partnerships are eligible if 100% directly owned and controlled by persons eligible to be a shareholder under IRC Sec. 1361. (Ineligible owners include corporations or non-US individuals).
- The tax will be an income tax on the apportioned and allocated net income equivalent to 5.75% (Georgia's current corporate income tax rate).
- Estimated payments will be similar to corporations and will be required for the electing entities if net income for the taxable year is expected to exceed $25,000.
- Making the election restores the full federal tax deduction for Georgia's income tax.
Impact for Individual Owners
Under this election, shareholders will avoid recognizing the pass-through income on their individual state return and forfeit any credit for other state taxes paid at the entity level. Consequently, by subtracting the income from Georgia rather than applying a state tax credit, it is possible certain personal income tax credits may not be utilized. These credits may include R&D or jobs tax credits, as well as donations made to student scholarship organizations, such as the Georgia GOAL Scholarship Program. It is important to understand how this election could impact your tax liability, as it may not be beneficial in every situation.
As always, please consult with your tax advisor at HLB Gross Collins, P.C. if you have any questions.