The cliché used to be to “retire to Florida” to enjoy the mild, tropical winter climate with no state income tax. However, 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.
In May 2010, Georgia Governor, Sonny Perdue, signed House Bill 1055 into law, which amended the Georgia Retirement Income Exclusion. In 2012, taxpayers ages 62 to 65 can exclude $35,000 of unearned income, but those 65 and older can exclude $65,000 or $130,000 for joint returns. This includes $4,000 of earned income that can be excluded.
Unearned income includes, but is not limited to, interest income, dividend income, net income or loss from rental property, partnership and S-Corp income that is not subject to federal FICA Tax or federal self employment tax, capital gains or losses, income from royalties, income from pensions and annuities, and IRA withdrawals.
Who is eligible for the retirement income exclusion?
A taxpayer is eligible for the exclusion if: (1) the taxpayer is 62 years of age or older during any part of the taxable year; or (2) the taxpayer has a permanent, medically provable disability that renders the taxpayer incapable of gainful employment.
When does the income exclusion increase?
For 2013, taxpayers age 65 and older will be able to exclude $100,000. In 2014 the exclusion increases to $150,000, and increases again to $200,000 in 2015 for taxpayers older than 65. In 2016, taxpayers older than 65 will be able to exclude an unlimited amount of unearned income.
Taxpayers ages 62 to 65 will be able to exclude $35,000 in unearned income in tax years 2012 through 2016. The exclusion limit of $4,000 of earned income will also remain for all taxpayers 62 and older.
Additionally, having earned income does not affect the eligibility of Georgia’s retirement exclusion. A 62-year-old taxpayer could earn income at a job and would be able to exclude up to $35,000 of unearned income and $4,000 of his earned income on his Georgia state income tax.
For example, Matt, 63, is retired and receives a pension of $26,000 per year. His wife Gloria, 62, is employed as a nurse making $53,000 per year. Their joint-owned stock portfolio earned them $12,500 in dividends and interest in 2010. Matt and Gloria also own a beachfront condo in South Carolina that garners $14,000 per year in rental income.
With the maximum exclusion amount for 2012 set at $35,000, Matt can exclude his entire pension of $26,000. Their joint-owned unearned income is $26,500 and is split between them ($13,250 each), so Matt can also exclude $9,000 of joint income bringing him to the $35,000 limit. Gloria can exclude $4,000 of her earned income from nursing and her allocable portion ($13,250) of the dividend, interest and rental income. Their combined taxable income of $105,500 is reduced to $53,250.
With the shifting of ownership of the brokerage account and the rental to Gloria’s ownership exclusively, she could increase her exclusion from $17,250 to $30,500. Matt would still exclude his entire pension and Gloria could exclude the $4,000 from her earned income and all of the income from the stock portfolio and the rental income. Their combined taxable income of $105,500 would be reduced to $49,000 ($105,500 minus Matt’s exclusion of $26,000 and Gloria’s exclusion of $30,500).
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
