For CPAs & Financial Advisors

There is a significant new double-tax benefit for pass-through businesses (effective for 2022), allowing a SALT (state & local income tax) limit workaround, coupled with a much more generous HEART tax credit opportunity in the first half of the year, per Georgia HB 149.

  • HB 149 allows your pass-through business to elect to pay state income taxes at the entity level, resulting in significant federal tax savings, of up to $21 thousand on Georgia taxable income of $1 million, as illustrated in this example
     
  • This election also expands the positive impact your business can have through the HEART program, as your pass-through business can now contribute up to 75% of its annual Georgia income tax liability to an eligible rural hospital during the first six months of the year (whereas the limit was previously $10,000), resulting in a meaningful double-tax benefit of federal tax savings and a Georgia tax credit. See our one-pager entitled Benefit meets Opportunity for further detail.
     

The significance of this new legislation:

  • Since 2018, individual taxpayers have been limited to a $10,000 federal deduction for their state and local taxes (SALT). 
  • IRS Notice 2020-75, issued 11/9/20, allows for a “SALT Workaround” for pass-through entities paying state income tax, allowing for state and local income taxes paid by a pass-through entity to be taken as a deduction by the pass-through entity in computing its taxable income or loss for the year.
  • Georgia enacted HB 149, effective in 2022, providing that pass-through entities may make an annual election to pay state tax due on income earned at the entity level at the rate of 5.75%.
  • The IRS will allow the entire amount of these state and local income taxes to be taken as a deduction in computing the electing entity’s taxable income.
  • Electing pass-through entities will be treated the same as C corporations for purposes of the HEART Program – meaning that they are able to contribute at a much more impactful level early in the year. Rather than being limited to $10,000 per pass-through owner until June 30, the pass-through entity may contribute up to 75% of its annual tax liability.
  • This development could mean that the entire cap on the HEART rural hospital tax credit program could be met much earlier in 2022.
     

Additional Resources: