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On March 2, 2018, Georgia Governor signed into law HB 918, a tax bill containing corporate and individual income tax changes (hereafter, the law). Notably the law temporarily reduces both the corporate and individual income tax rates, updates the state's date of conformity to the Internal Revenue Code (IRC) while decoupling from certain changes made by the federal Tax Cuts and Jobs Act (P.L. 115-97) (TCJA), and addresses Georgia's conformity to certain international tax law changes under the TCJA.

This Alert is a summary of the changes.

Temporary corporate and individual income tax rate reductions

The law temporarily reduces both the corporate and the highest individual income tax rates. Applicable to tax years beginning on or after January 1, 2019, the corporate income tax rate and the highest individual income tax rate, both currently 6%, decrease to 5.75%.

Applicable to tax years beginning on or after January 1, 2020, the corporate and the highest individual income tax rates further decrease to 5.5%, if the legislature approves, and the governor signs, a joint resolution ratifying this additional rate reduction.

These reductions are temporary and will sunset on December 31, 2025. On January 1, 2026, the corporate and the highest individual income tax rates will revert back to the 6% rate — the rate in effect on the day before the law was enacted.

Effective January 1, 2018, and through December 31, 2025, the individual standard deduction is increased as follows:

— In the case of a single taxpayer or a head of household, $2,300.00 $4,600.00;

— In the case of a married taxpayer filing a separate return, $1,500.00 $3,000.00;

— In the case of a married couple filing a joint return, $3,000.00 $6,000.00;

Conformity to the Internal Revenue Code

Effective for taxpayer years beginning on or after January 1, 2017, the law updates Georgia's IRC conformity date to February 9, 2018, with some very important exceptions. Thus, Georgia generally conforms to the changes to the IRC made by the TCJA and the Bipartisan Budget Act of 2018 (P.L. 115-123) (BBA), unless otherwise noted. Georgia tax law, however, will continue to decouple from bonus depreciation and will decouple from the increased expensing under IRC Section 179. It also has not adopted the new 30% business interest expense limitations under IRC Section 163(j) as amended by the TCJA by, interestingly, conforming to that subsection of the IRC as it existed on December 21, 2017 (the day before enactment of the TCJA). Consistent with the state's determination to decouple from the IRC Section 163(j) provisions, the law expressly decouples the Georgia tax laws from the new TCJA provisions adding IRC Section 381(c)(20), Section 382(d)(3) and Section 382(k)(1), which are related to the carryover of disallowed interest under the new IRC Section 163(j), as well as the imposition of an annual valuation limitation upon a change of ownership of the entity holding such a carryover. Likewise, IRC Section 118, which deals with capital contributions and relates to changes in the way taxpayers account for governmental credits and incentives in their bases, is treated as it was in effect before the 2017 enactment of the TCJA (in other words, for Georgia purposes, taxpayers continue to get the full benefit of credits and incentives as under prior federal law).

Further, federal changes that were enacted as of February 9, 2018, but were not yet effective, will take effect for Georgia tax purposes on the same date they take effect for federal tax purposes.

Ernst & Young LLP insights

Employers should keep a watch for updated 2018 state income tax withholding tables that reflect the increase in the standard deduction. State income tax withholding tables will likely also be revised for tax year 2019 to reflect the reduction in the state's income tax rates.

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