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 very early in 2022.
Georgia HEART will begin accepting 2022 tax credit applications on November 1st at 9:00 am. Should I race to get in line? Yes, says HB 149!