On May 4, 2021, Georgia Governor Kemp signed into law H.B. 149, a bill that creates an election for partnerships and S-corporations to be taxed at the entity level. This is an annual irrevocable election, that must be completed before the due date of the return, including any extensions. When elected, the entity is subjected to a 5.75% income tax rate on the Georgia sourced income. The election prevents the entity from claiming some deductions and credits but offers new planning opportunities to flow-through entities in Georgia.
We invite the opportunity to answer any questions you may have regarding this or other tax legislation. Please contact us today to set up a time to discuss the positive impacts it may have for you.
A summary of H.B. 149 and related considerations are outlined as follows:
The Georgia bill is a direct response to the IRS Notice 2020-75 and the federal $10,000 SALT cap that was included in the 2017 Tax Cuts and Jobs Act. This cap was designed to limit the federal deduction, and benefit, derived from paying state taxes in applicable jurisdictions.
The When and Where
Georgia’s new pass-through entities (PTEs) election is applicable to tax years beginning on or after January 1, 2022.
Eligible PTEs should consult with their tax advisors on making this new election. Specifically, resident shareholders or partners considering this election should weigh the benefits of shifting the incurrence of Georgia income tax to the PTE against any loss of deductions for the PTE’s income taxed in others states and any potential loss of credits for income taxes paid to other states. The results could vary significantly on facts and circumstances including Georgia apportionment factor and to the extent to which the PTE pays income taxes to other states.
- Georgia’s H.B. 149 does not specify who is required, or who has the authority, to make the election. As of now, we only know that the election must be submitted by the due date for filing the return and must have 100% approval of owners.
- The 5.75% tax rate for electing PTEs is the same rate as Georgia’s current corporate income tax rate. However and based on current legislation, the tax rate would exceed Georgia’s highest individual income tax rate in future tax years.
- The Georgia Department of Revenue is expected to issue regulations, further commentary that should provide clarification of the rules and provide answers to open questions.
Reach out today to begin modeling the considerations for the new PTE election and its impacts on you and your organization.