Primer on Tax Breaks for Georgia’s Senior Taxpayer – February 2011 Newsletter – Updated August 2014

Primer on Tax Breaks for Georgia’s Senior Taxpayers

With a mix of Georgia laws governing tax breaks for senior taxpayers, we at Redwood want to provide a quick guide on what retirement income can and cannot be excluded from taxation.

Since 1990, the Georgia Retirement Income Exclusion has allowed Georgia residents who are 62 years of age and older or permanently and totally disabled to exclude some retirement income from taxation.  For 2010 and 2011, eligible taxpayers can exclude $35,000 of unearned income (interest, dividends, capital gains, pensions and annuities) and $4,000 of earned income (salary and business income) on their state income taxes.  House Bill 1055, signed in 2010, and revised again in 2012 increases the amount of retirement income not subject to Georgia income tax.  Retirement income includes – but is not limited to— IRA withdrawals, interest, dividend, rent and royalty income, capital gains, pensions, annuities, other unearned income and up to $4,000 of earned income.

Under this new law, the retirement income exclusion for tax years 2012 and beyond, the income exclusion per taxpayer is $65,000.  So for a married couple, they can exclude $130,000, and a single taxpayer $65,000.

A very powerful tool is to split assets between a married couple either using separate revocable trusts, or an account registration called transfer on death, versus the typical joint with right of survivorship.

For example, let say we have a tax payer couple age 67 and they are retired.  The wife receives an annual pension of $60,000, and they have capital gains and interest income of $40,000.   If the investment account is jointly registered and she is the person listed first, out of the total income of $100,000, only $65,000 would be tax free.  They should set up a transfer on death account in the name of the husband and move the assets to him.  That way he would get the entire $40,000 exempted, and so would the wife on her $60,000 pension income.  There are no tax/estate tax consequences of moving money between spouses.  The end goal is for both spouses to get the full $65,000 exemption.

Retirement income exceeding the maximum exclusion will be taxed at regular income tax rates that top out at 6 percent.  Additionally, Social Security income is exempt from state taxes in Georgia.

As always, do not hesitate to contact us here at Redwood about any questions or comments about taxes, investment or your portfolio.

A Quick Word on Homestead Exemptions:

The state of Georgia along with many other states offer homestead exemptions to persons that own and occupy their home as a primary residence. These exemptions can provide considerable tax benefits. Also, many ounties offer their own homestead exemptions that provide additional benefits to those offered by the state.  For more information on homestead exemptions in Georgia, https://etax.dor.ga.gov/ptd/adm/taxguide/exempt/homestead.aspx