How to Calculate Taxable Income for Georgia State Income Tax
Base your Georgia income tax calculations on your federal adjusted gross income.
Georgia bases state income taxes on the federal adjusted gross income from federal income tax forms. If you are a Georgia resident, you must complete the federal income tax Form 1040, Form 1040A or Form 1040EZ to get the figures you need to complete the Georgia state income tax forms. Georgia had a personal exemption of $2,700 and $3,000 for each dependent as of 2010. A standard deduction is $2,300 for single taxpayers and heads of households, $3,000 for couples or $1,500 for married persons filing separately. Seniors over age 65 or those who are blind can receive a $1,300 additional deduction if they do not itemize deductions.
Locate your federal income tax adjusted gross income as reported on Line 37 of Form 1040, Line 4 of Form 1040EZ or Line 21 of Form 1040A. Use this figure for the starting base for calculating Georgia state income taxes.
Subtract the personal exemption for yourself at $2,700 and for each dependent at $3,000. Subtract the standard deduction of $2,300 if you are single, $3,000 if you are married filing jointly, or $1,500 if you are married filing separately. If you are a senior over age 65 or blind, subtract an additional $1,300 if you do not itemize deductions.
Calculate the retirement income exclusion if you are 62 or over, disabled or blind, and have retirement income that qualifies for exclusion. You can exclude $35,000 of your retirement income for the year in 2011 and $65,000 in 2012. Consider other adjustments you may use by reviewing the list provided in the Georgia Department of Revenue IT500 general instructions, page 10. Subtract or add these adjustments to arrive at your total taxable income for Georgia state tax. You can calculate the actual tax owed by multiplying the taxable amount by the percentage from the tax bracket tables.
Determine the percentage of tax you owe the state based on the tax bracket tables, if you are filing as a single taxpayer. Up to $750 is 1 percent. Georgia residents owe 2 percent on $750 to $2,250 and 3 percent between $2,250 and $3,750. The tax is 4 percent between $3,750 and $5,250 and 5 percent between $5,250 and $7,000. The highest bracket is 6 percent for individuals whose adjusted gross income less personal exemptions for self and dependents and less the standard deduction is over $7,000. Each amount adds the total tax for the lower amount. For example, if you are in the 3 percent bracket, you pay $37.50 for the tax up to $2,250 plus 3 percent on taxable income above $2,250.
Apply a different table if you are married filing jointly. The 1 percent tax rate applies up to $1,000. Up to $3,000 is $10 plus 2 percent of the amount between $1,000 and $3,000; between $3,000 and $5,000 is $50 plus 3 percent of the amount over $3,000. The 4 percent rate applies to $5,000 to $7,000, with $110 added. The 5 percent rate starts with $190 and applies to amounts between $7,000 and $10,000. The 6 percent rate applies to amounts over $10,000, with the addition of $340 for the calculation up to the $10,000 amount.
If you are new to Georgia and have income from another state, file your tax return with that state for income earned there. File Schedule 2 and include a copy of the other state's return with your Georgia tax return to receive credit.
Review the Georgia instructions carefully, as some federal adjustments may not be accepted by Georgia. You may need to adjust your federal adjusted gross income with explanation to the Georgia Department of Revenue.
State Income Tax Rates: What They Are and How They Work
State income tax rates receive relatively little attention compared with federal taxes, but they can still leave a considerable imprint on your overall bill. How large depends on the amount you earn, as well as where you live and work.
In general, states take one of three approaches to taxing residents and/or workers:
- They don’t tax income at all.
- They impose a flat tax. That means they tax all income, or dividends and interest only in some cases, at the same rate.
- They impose a progressive tax. That means they tax higher levels of income at higher rates.
If, like most people, you live and work in the same state, you need to file only one state return each year. But if you moved to another state during the year, lived in one state but worked in another or have, say, income-producing rental properties in multiple states, you might need to file more than one. And because most tax software prices include preparation and filing for only one state, filing multiple state returns can mean paying extra.
One piece of good news: In Alabama, Iowa, Louisiana, Missouri, Montana and Oregon, you might be able to soothe the sting by deducting some or all of your federal taxes on your state return.
Seven states currently don’t tax most income earned there:
The idea of not having to pay state income taxes could give you the urge to throw everything in a U-Haul and head for Dallas, but property taxes, sales taxes or other taxes and fees might be higher in those states.
Ten states try to keep things simple by applying the same tax rate to most income. Of course, what counts as “income” depends on the state. In New Hampshire and Tennessee, for example, regular income is generally not subject to state tax, but a flat tax rate applies to dividends and interest income. And some states apply their tax rates to taxable income, while others use adjusted gross income.
The remaining 33 states and the District of Columbia tax income much the way the federal government does: They tax higher levels of income at higher rates.
At the federal level, for example, a single taxpayer pays 10% on the first $9,275 of income, and then 15% of anything between $9,276 and $37,650, 25% of anything between $37,651 and $91,150, and so on. The rates stair-step to 28%, 33%, 35% and finally 39.6% for income of more than $415,051.
State tax rates tend to be lower than federal tax rates. Many range between 1 and 9%. Some states tax as little as 0% on the first few thousand dollars of income. Even high-tax states top out around 12%, but that’s on top of property taxes, sales taxes, utility taxes, fuel taxes and whatever the taxpayer must send to the federal government.
The table below shows the number of tax brackets in the 33 states (plus D.C.) with progressive tax structures. Note that the dollar amounts in the income brackets apply to individual filers; in many states, the income brackets double for joint returns. As is the case for federal returns, the amount you’ll pay to your state is also a function of your marital status, whether you have dependents and whether you qualify for deductions and credits.
To learn more about how your state taxes work, visit the website of your state’s taxation and revenue department, or the Federation of Tax Administrators.
Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: [email protected]
I don't pay my taxes:
Disclaimer: NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty. When evaluating offers, please review the financial institution’s Terms and Conditions. Pre-qualified offers are not binding. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly.
Advertiser Disclosure: So how do we make money? We receive compensation from our partners when someone applies or gets approved for a financial product through our site. But, the results of our tools (like our credit card comparison tool) and editorial reviews are based on quantitative and qualitative assessments of product features — nothing else. Compensation may influence the products we review and write about, the order in which categories appear in “best of” articles, whether products appear on our site and where they’re placed. While we try to feature as many product offers on our site as we can maintain (1,200+ credit cards and financial products!), we recognize that our site does not feature every company or financial product available on the market.
Consumption Tax vs. Income Tax: Why More States Are Opting to Collect Consumption Taxes Only
States obviously need money to fund the various strongholds that keep society in good working order, such as public safety, education, infrastructure, and transportation. To do so, individual states charge an income tax, consumption taxes (such as sales and use tax), or a combination of both.
The average revenue collected by states from consumption tax vs. income tax is currently 30 percent and 41 percent, respectively. However, these percentages could change drastically as state collection trends begin to surface. In times of economic hardship, many states are looking to raise revenue solely through consumption-based taxes. States such as Georgia, Kansas, Louisiana, Missouri, and Nebraska are considering reducing or eliminating income taxes altogether, stating that the consumption of many products, such as alcohol, remains the same during economic downturns. This gives states more consistent revenue to work with despite economic volatility.
Background on State Revenue Collection
Property and corporate taxes aside, your state can collect revenue through one, or both, of the following:
- Income tax: Raising funds by taxing your pay and your capital (any interest earned from savings or dividends/capital gains earned from stocks).
- Consumption tax: Collecting taxes when you consume something (typically at the point of transaction). Your receipt shows the amount of consumption taxes collected
There are seven states that do not collect income taxes at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, Tennessee and New Hampshire do not have income taxes, though they do tax on interest and dividends. There are also five states that collect no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. (Note that Alaska and Montana localities institute their own sales tax.)
If you live in any other state than those specifically mentioned above, then you are charged both income and consumption taxes.
The recent trend is moving towards a consumption tax alone, abandoning state income taxes. If your state is considering this method, there are some changes you can anticipate.
- Increase in taxable items: By removing income taxes, your state will need to fill in the revenue gap. It’s likely that the sales tax rate, and/or the sales tax base (e.g. the items they collect taxes on), will increase.
- Frugal shoppers rejoice: Some states may opt to not tax basic necessities, like food or medicine, in an attempt to decrease the tax burden on those struggling to get by. So if you are a frugal shopper who only buys the basics, you’ll pay less taxes than you used to.
- April is no longer daunting: Come tax season, you won’t have any surprises with this pay-as-you-go system. All taxes owed are paid during your transactions.
- More in your paycheck: Abolishing your state’s income tax is equivalent to receiving a small pay bump each paycheck.
- Changes in buying behavior: Since you are taxed on consumption, you may think twice before making a purchase. With a healthier savings account, you may even give bartering a try through sites like Craigslist. When bartering, however, beware of possible tax consequences.
In the consumption tax vs. income tax debate, more states are opting to tax on sales. The potential financial gains for residents are exciting. Just remember that taxes based on spending put you in control — for better or worse — so make sure any new financial gains aren’t offset by impulsive purchases.