When you retire, one of the biggest concerns is how much income you’ll need to maintain your standard of living. For retirees in Georgia, the most frequently asked questions are:
“Does Georgia tax retirement income?”
and
“Does Georgia tax Social Security benefits?”
There’s No Tax on Social Security Benefits in Georgia
The good news is that if you retire in Georgia, the state does not tax Social Security benefits. That will be a relief to many retirees who are Georgia natives or plan to retire in Georgia. So, you can start with that basis; your Social Security benefits are not taxed in Georgia. Next, you need to determine how much of your other retirement income will be subject to Georgia income taxes.
Let’s look at the rules regarding Georgia income taxes on retirement income. Our examples will cover age, what counts as retirement income, income exclusions, and how to calculate earned income in retirement.
More About Social Security Benefits
Now that you are aware Georgia does not tax your Social Security benefits, let’s examine a typical example to understand how you will pay taxes on the remainder of your retirement income.
For example, if you receive $24,000 annually in Social Security benefits along with $40,000 from other retirement sources, you won’t pay any Georgia state tax on the $24,000. The $40,000 from other income sources would fall under the retirement income exclusion rules, which we will discuss in a moment.
Before we get to the retirement income exclusion rules, let’s see what Georgia counts as retirement income.
What Qualifies as Retirement Income in Georgia?
Georgia’s definition of retirement income includes:
- Income from pensions and annuities
- Interest income
- Dividend income
- Net income from rental property
- Capital gains
- Income from royalties
- Up to $5,000 of earned income
Now we’ll see how the age-based exclusions factor in.
Georgia’s Retirement Income Exclusions: How Your Age Affects Your Tax Situation
In addition to the Social Security exclusion, you will find that Georgia offers age-based income exclusions from taxes. These exclusions allow you to shield a portion of your retirement income from state taxes.
Exclusion for those aged 62-64
If you’re between 62 and 64, Georgia offers a retirement income exclusion of up to $35,000.
Let’s say you’re 63 and have decided to take early retirement. You receive $45,000 annually from your pension. You can exclude $35,000 of this income, meaning only $10,000 would be subject to Georgia state taxes.
Maximum exclusion at 65 and older
Once you reach 65, you’ll enjoy up to a $65,000 exclusion. If it’s possible, waiting to retire until age 65 can mean more dollars in your pocket.
Here’s an example: You’re 66, married, and filing jointly with your 65-year-old spouse. Your combined retirement income is $150,000 (this is apart from Social Security). You can exclude $130,000 ($65,000 each), leaving only $20,000 subject to Georgia state taxes.
Another example: If you’re a 68-year-old retiree with $40,000 in pension income, $10,000 in dividends, and $5,000 in interest income, your total retirement income of $55,000 would be fully excludable from Georgia state taxes.
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Working in Retirement: How Earned Income Factors In
Georgia’s 2024 $5,000 earned income allowance
Not everyone retires completely; sometimes people need to earn some extra money, and some people like staying active, too. So, what if you decide to work part-time during retirement? Georgia allows you to include up to $5,000 of earned income for 2024 as part of your retirement income exclusion.
Let’s say you’re 67 and earn $10,000 from a part-time job, in addition to $55,000 from your pension and investments. You can exclude the entire $55,000 of retirement income plus $5,000 of your earned income, for a total exclusion of $60,000. The remaining $5,000 of earned income would be subject to Georgia state taxes.
Balancing Work and Retirement Income
Note that Georgia taxes any earned income above the $5,000 allowance at its regular income tax rates. For most income levels, Georgia has a flat tax rate of 5.49% as of 2024.
For example, if you’re 70 years old with $70,000 in pension and investment income and $20,000 in earned income from consulting work, here’s how you’ll be taxed:
- $65,000 of your retirement income is excluded.
- $5,000 of your earned income is excluded.
- The remaining $20,000 ($5,000 from retirement income + $15,000 from earned income) would be subject to Georgia state taxes.
Note These Additional Special Rules
Aside from the general rules above, there are a few additional special rules that may affect you. You may be asking, “Does Georgia tax military retirement income?” Note these military retirement income exclusions, which can help you avoid Georgia state taxes:
Military Retirement Income Exclusions
Since January 1, 2022, $17,500 of military retirement income can be excluded for taxpayers under 62 years of age. An additional $17,500 can be excluded for taxpayers with more than $17,500 of Georgia-earned income.
If you are married, both you and your spouse can take this exclusion, but each of you must qualify separately.
Planning Ahead: Strategies to Maximize Your Retirement Income
Timing Your Retirement
If you’re nearing retirement, consider how Georgia’s age-based exclusions might affect your plans. Waiting until you’re 65 to retire could result in significant tax savings.
For instance, if you’re 64 with $50,000 in retirement income, you’d be able to exclude $35,000, leaving $15,000 taxable. If you wait just one year to retire, you could exclude the entire $50,000, potentially saving you over $800 in state taxes (based on the 5.49% rate).
Diversifying Your Income Sources
Given Georgia’s broad definition of retirement income, diversifying your income sources can help you make the most of the exclusion. You can improve your tax situation by balancing distributions from various retirement accounts and investment income, as well as adding even a small amount of earned income.
For example, a mix of IRA distributions, dividend-paying stocks, and a small part-time job could allow you to reach the full $65,000 exclusion at age 65 or older while minimizing your taxable income.
Remember, while Georgia’s treatment of retirement income is generally favorable, it’s always wise to consult with a tax professional or financial advisor to ensure you’re making the most of these benefits based on your unique financial situation.
Contact Moore’s Wealth Management for a Free Retirement Plan Analysis
With Georgia’s generous retirement income tax exclusions, no tax on Social Security benefits, and earned income exclusion, you can put together a plan to help maximize your retirement income. Take the next step towards retirement with a free analysis of your plan. Moore’s can show you strategies towards preserving your savings, grow assets, and plan for your future.
Together, we will explore your financial objectives and strategies for achieving them. There’s no pressure or sales pitch. You will have the opportunity to ask questions and get the answers you need to make informed retirement income decisions.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
