Special Examination Report No. 15-10

December 2015

Georgia Department of Audits and Accounts
Performance Audit Division
Greg S. Griffin, State Auditor Leslie McGuire, Director

Why we did this review
This special examination of state income tax data was conducted at the request of the Senate Appropriations Committee. The Committee requested that we provide information and analysis on:
(1) Characteristics of filers and historic trends, including distributions on full-year resident returns;
(2) Tax liabilities and effective tax rates derived from adjusted gross income and taxable income; and
(3) Types of income and historical trends on categories of income, as well as state and federal adjustments, deductions, and credits.
About state income tax
The Georgia Constitution and authorizing statutes establish the provisions of the state's individual income tax system. The revenues from income tax are mandated to be directed into the General Fund.
The current rate structure for Georgia's individual income tax has not changed since 1955. However, in 2014, the state Constitution was amended to cap the top tax rate at 6%.
The Georgia Department of Revenue is responsible for collecting income taxes and for publishing the forms and instructions tax filers use each year to file their tax returns.

Analysis of State Individual Income Taxes

What we found

Individual income tax, the single largest source of state revenue, generated $8.8 billion (45%) of the state's $19.5 billion in revenue in fiscal year 2013.

Lottery Funds (5%)
Fees and Sales (6%)

Other Revenue (2%)

Motor Fuel Tax (5%)

Other Taxes (6%)

Sales and Use Tax
(27%)

Individual Income Tax (45%)

Corporate Income Tax (4%)

There are various types of income subject to state individual income tax. The primary type of income for tax year 2013 was wages, which constituted 74% of all reported income.

$1.6 billion (1%)

$15.1 billion (8%)

$10.9 billion (6%)
$21.9 billion (12%)

Wage Income

Retirement Income

Investment Income

$140.1 billion (74%)

Business Income Other Income

270 Washington Street, SW, Suite 1-156

Atlanta, Georgia 30334

Phone: (404)656-2180

www.audits.ga.gov

Statewide Income (Billions) Number of Returns

The starting point for calculating Georgia's individual income tax is federal adjusted gross income (federal AGI). For state income tax purposes, the filer then claims applicable state adjustments to calculate Georgia adjusted gross income (Georgia AGI). Next, deductions and exemptions are applied to Georgia AGI in order to calculate Taxable Income. Shown below is statewide income at each income phase. State tax rates are applied to Taxable Income to determine the filer's gross Tax Liability prior to the subtraction of tax credits to calculate a filer's Tax Liability. As shown below, approximately 936,000 returns (24%) had no Tax Liability, while approximately 842,000 returns (22%) had a Tax Liability greater than $2,500.

$250 $200 $150 $100
$50 $0

2009

2010 FAGI

2011

2012

GAGI Taxable Income

1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
2013

Tax Liability
Effective tax rate is the rate at which a filer is taxed on income and is calculated by dividing the filer's Tax Liability by federal AGI. The effective tax rate is significantly influenced by adjustments, deductions, exemptions, and credits, which lower a filer's effective tax rate. The effective tax rate is a more accurate reflection of the rate at which a filer is taxed than the marginal tax rate. The average effective tax rate for all full-year resident returns was 2.2%.

7%
Top Marginal Tax Rate 6%

5%

Effective Tax Rate

4%

3%

2%

1%

0.5%

0% Income Quintile
Approximate FAGI range

Bottom
$12,000 and Below

1.4%
Second $12,000 to
$24,000

2.6%
Middle $24,000 to
$42,000

3.0%

3.6%

Fourth
$42,000 to $80,000

Top Above $80,000

2.2% All

Our analysis is based on 2013 income tax returns received by the Department of Revenue (DOR). State tax return data was the primary source used. Additionally, DOR provided federal return data for approximately 85% of Georgia tax filers. These filers were e-filers who provided copies of their federal tax returns to DOR along with their state returns. It is important to note that this report may differ from other published figures due to variations in data sources, methodology, time periods, and other considerations.

Analysis of State Individual Income Taxes

i

Table of Contents

Purpose of the Special Examination

1

Background

1

State Individual Income Tax

1

State Constitution and Statutory Requirements

2

Individual Income Tax Calculation

2

Chapter 1: Filer Characteristics

5

Residency

5

Filing Status

6

Household Size

7

Chapter 2: Income

9

Investment Income

10

Business Income

11

Retirement Income

13

Other Income

14

Income Measures

15

Chapter 3: Taxes

17

Tax Liability

17

Effective Tax Rates

19

Chapter 4: Adjustments

22

Federal Adjustments

22

State Adjustments

24

Chapter 5: Deductions

30

Itemized Deductions

30

Chapter 6: State Tax Credits

34

Chapter 7: Filers With No Tax Liability

39

Chapter 8: Tax Expenditures

41

Appendices

43

Appendix A: Objectives, Scope, and Methodology

43

Analysis of State Individual Income Taxes

ii

Appendix B: Income Types

46

Appendix C: Federal Adjustments

47

Appendix D: State Adjustments

48

Appendix E: Itemized Deductions

49

Appendix F: State Tax Credits

51

Analysis of State Individual Income Taxes

1

Purpose of the Special Examination
This analysis of state individual income taxes was conducted at the request of the Senate Appropriations Committee. The Committee asked that we provide the following:
1. Characteristics of filers and historic trends, including distributions on fullyear resident returns;
2. Analytics on tax liabilities and effective tax rates derived from adjusted gross income and taxable income; and
3. Analysis on types of income and historical trends on categories of income, as well as state and federal adjustments, deductions, and credits.
A description of the objectives, scope, and methodology used in this review is included in Appendix A. A draft of the report was provided to the Department of Revenue for its review. The Department of Revenue had no comment regarding the draft.
Background

State Individual Income Tax
As shown in Exhibit 1, individual income tax is the single largest source of state revenue. In fiscal year 2013, the state generated more than $19.5 billion in revenue, of which the individual income tax generated $8.8 billion (45%). The second largest source of revenue was the sales and use tax, which generated $5.3 billion (27%).

Exhibit 1

Individual Income Tax Collections Represent 45% of State Revenues

Fiscal Year 2013

Other Revenue2

Lottery Funds

(2%)

(5%)

Fees and Sales (6%)

Motor Fuel Tax (5%)

Other Taxes1
(6%)

Sales and Use Tax
(27%)

Individual Income Tax (45%)

Corporate Income Tax (4%)
1Other taxes include taxes on tobacco, alcoholic beverages, property, insurance premiums, and motor vehicle licenses. 2Other revenue includes tobacco settlement funds, the Brain and Spinal Injury Trust Fund, and national mortgage settlement funds.
Source: Governor's Budget Report

Analysis of State Individual Income Taxes

2

State Constitution and Statutory Requirements
The provisions of Georgia's individual income tax system are established in the state Constitution and statutes. Amounts for adjustments, deductions, and credits, as well as tax rates and brackets, are set in state statute. The current tax rate structure has remained unchanged since 1955. In 2014, the state Constitution was amended to cap the top tax rate at its current level of 6%. The state Constitution also mandates that income tax revenues be deposited into the General Fund.
The Georgia Department of Revenue (DOR) is responsible for collecting income taxes and for publishing the forms and instructions tax filers use to file tax returns each year. Full-year residents are required to file a state income tax return if they meet one or more of the following criteria:
They are required to file a federal income tax return;
They have income subject to Georgia income tax but not subject to federal income tax; or
If their income exceeds the applicable standard deduction and personal exemption amounts. This threshold can range from $5,000 to $15,600 depending on filing status, age, and whether the filer and/or spouse is blind.
Part-year residents and nonresidents who are required to file a federal income tax return and who work in Georgia or receive income from Georgia sources are also required to file a Georgia income tax return. Nonresidents are not required to file a Georgia income tax return if their Georgia wages do not exceed the lesser of 5% of their total wages or $5,000. Additionally, part-year residents and nonresidents are only taxed on income derived from within Georgia.

Individual Income Tax Calculation
The process for calculating Georgia individual income tax is shown in Exhibit 2. It includes the following components:
Total Income The determination of income subject to state income taxes begins with Total Income, which is calculated on the federal tax return. Total Income incorporates different sources of income, such as wages, interest, and retirement income.
Federal Adjustments Federal adjustments are subtracted from Total Income to calculate federal adjusted gross income (federal AGI). Federal adjustments are set in federal law and reduce Total Income by subtracting items such as student loan interest.
State Adjustments Georgia individual tax returns begin with federal AGI from the federal tax return. State adjustments address differences between the state and federal tax codes. State adjustments may be additions or subtractions to income. State additions include certain income not taxed by the federal government, such as interest paid on other state governments' bonds. State subtractions exclude income taxed at the federal level that is not taxed by Georgia, such as Social Security benefits. When additions and subtractions are combined, the filer's net adjustment is applied to federal AGI in order to calculate Georgia adjusted gross income (Georgia AGI). Depending

Analysis of State Individual Income Taxes

3

on the combination of state adjustments applied, a filer's Georgia AGI may be higher or lower than federal AGI.
Exhibit 2 How Georgia Individual Income Tax Is Calculated

Wages, Interest, Business Income, etc.
equals
Total Income
minus
Federal Adjustments
equals
Federal Adjusted Gross Income
plus/minus
State Adjustments
equals
Georgia Adjusted Gross Income
minus
Deductions and Exemptions
equals
Taxable Income
multiplied by
Tax Rates
equals
Gross Tax Liability
minus
Tax Credits
equals
Tax Liability
Source: Federal and Georgia tax forms
Deductions After the calculation of Georgia AGI, deductions further reduce the income subject to state taxes. A filer may choose to claim the standard deduction, a flat amount set in state statute and determined primarily by filing status (i.e., Single, Married Filing Jointly, etc.). Alternatively, the filer may choose to itemize and deduct expenses such as mortgage interest and charitable contributions from their income.
Personal and Dependent Exemptions Income subject to taxation is then further reduced by a personal exemption for the filer and a dependent

Analysis of State Individual Income Taxes

4

exemption for each dependent claimed. When deductions and exemptions are subtracted from Georgia AGI, the result is Taxable Income.

Tax Rates State tax rates are applied to Taxable Income to determine the filer's gross Tax Liability prior to the subtraction of tax credits. As shown in Exhibit 3, Georgia utilizes six income brackets, which are set in state statute. The brackets are graduated and utilize marginal tax rates, with a top rate of 6%. The minimum and maximum income for each bracket is determined by filing status.

Exhibit 3

State Tax Brackets by Filing Status

Single:

If Taxable Income is:

Then tax is:

Not over $750

1% of Taxable Income

Over $750 but not over $2,250

$7.50 plus 2% of amount over $750

Over $2,250 but not over $3,750

$37.50 plus 3% of amount over $2,250

Over $3,750 but not over $5,250

$82.50 plus 4% of amount over $3,750

Over $5,250 but not over $7,000

$142.50 plus 5% of amount over $5,250

Over $7,000

$230.00 plus 6% of amount over $7,000

Married Filing Separately:

If Taxable Income is:

Then tax is:

Not over $500

1% of Taxable Income

Over $500 but not over $1,500

$5.00 plus 2% of amount over $500

Over $1,500 but not over $2,500

$25.00 plus 3% of amount over $1,500

Over $2,500 but not over $3,500

$55.00 plus 4% of amount over $2,500

Over $3,500 but not over $5,000

$95.00 plus 5% of amount over $3,500

Over $5,000

$170.00 plus 6% of amount over $5,000

Married Filing Jointly, Head of Household, and Qualifying Widow(er):

If Taxable Income is:

Then tax is:

Not over $1,000

1% of Taxable Income

Over $1,000 but not over $3,000

$10.00 plus 2% of amount over $1,000

Over $3,000 but not over $5,000

$50.00 plus 3% of amount over $3,000

Over $5,000 but not over $7,000

$110.00 plus 4% of amount over $5,000

Over $7,000 but not over $10,000

$190.00 plus 5% of amount over $7,000

Over $10,000

$340.00 plus 6% of amount over $10,000

Source: O.C.G.A. 48-7-20

Tax Credits After tax rates are applied to Taxable Income to determine the filer's gross Tax Liability, the filer may claim applicable state tax credits to reduce the amount of tax that must be paid. For example, a filer with a Georgia AGI of less than $6,000 may claim the full low income tax credit. This credit would reduce the filer's Tax Liability by $26 each for the filer and any dependents. Tax credits reduce a filer's Tax Liability on a dollar-for-dollar basis. However, Georgia currently has no refundable tax credits, so filers do not receive a refund if their Tax Liability falls below zero.

Analysis of State Individual Income Taxes

5

Chapter 1: Filer Characteristics
This chapter discusses characteristics of Georgia individual income tax filers, including residency, filing status, and household size. Historical trend data is provided for tax years 2009-2013, and detailed statistics are provided for 2013 full-year resident returns.

Exhibit 4 provides historical information regarding individual income tax returns for full-year residents for tax years 2009-2013. Federal AGI, Georgia AGI, Taxable Income, and Tax Liability each increased over this time period, with the largest increases occurring from 2011 to 2012.

Exhibit 4 State Tax Return Summary Information1 Tax Years 2009-2013

2009

2010

2011

Number of Returns

3,908,190

3,950,106

3,852,637

Federal AGI Georgia AGI

$192,664,904,199 $201,921,067,523 $197,537,180,370 $176,444,127,033 $183,351,750,292 $178,788,858,588

Taxable Income

$123,222,866,089 $129,832,264,937 $116,644,698,187

Tax Liability

$6,456,780,507 $6,769,659,241 $7,023,904,518

1Analysis is based on state data and includes full-year returns only.

Source: DOR tax return records

2012 3,827,371
$218,821,767,751 $195,118,173,198 $130,513,696,451
$7,481,838,842

2013 3,850,946
$218,607,853,410 $193,989,019,050 $128,125,131,408
$7,404,267,618

Residency
As shown in Exhibit 5, full-year residents accounted for more than 90% of state individual income tax returns between 2009 and 2013. In 2013, full-year residents filed approximately 3.9 million of the 4.2 million state income tax returns (91%). Full-year residents also represented approximately $7.4 billion of the $7.9 billion1 (94%) in Tax Liability. The remaining analyses in the report are based on full-year resident returns.

1 This amount is based on the Tax Liability reported on tax year 2013 individual income tax returns. The amount noted on page 1 is based on income tax collections for fiscal year 2013, which includes collections from other tax years, individuals who did not file tax returns, and other potentially significant sources of variation.

Analysis of State Individual Income Taxes

6

Number of Returns Millions

Exhibit 5 Full-Year Residents Represented More Than 90% of Returns and Tax Liability1
Tax Years 2009-2013

$172 million

2013 Tax

(2%) $337 million

5

Liability

(4%)

4

3

2

92%

92%

91%

91%

91%

6% 3%
2013 % of Returns

1
0 2009

2010

2011

2012

2013

Full-year resident
1Analysis is based on state data. Source: DOR tax return records

Part-year resident

91%
$7.4 billion (94%)
Nonresident

Filing Status Filing status determines a filer's income tax bracket, as well as the amount the filer is allowed to claim for the standard deduction and for personal exemptions. There are four filing statuses.
Single Filers who do not qualify for another filing status are considered Single.
Married Filing Jointly Filers who are married on the last day of the tax year may choose to file a joint return.
Married Filing Separately Filers who are married on the last day of the tax year may choose to file separate returns.2
Head of Household/Qualifying Widow(er) A filer qualifies as Head of Household if he or she is unmarried, pays more than half the cost of maintaining a home for the year, and has a qualifying person (such as a dependent child or parent) living in the home for more than half the year. The Qualifying Widow(er) status may be used for two years following the death of a spouse if the widow(er) has a dependent child living in his or her home. A status of Head of Household or Qualifying Widow(er) is subject to the same income tax provisions.
Filing status is generally the same on the Georgia return as on the federal return. However, if one spouse is a Georgia resident and the other is a nonresident with no Georgia income, the filer may elect to file the state return jointly or separately.

2 There are a variety of tax scenarios for why a married couple would choose to file separate returns versus a joint return. These scenarios are beyond the scope of this report.

Analysis of State Individual Income Taxes

7

As shown in Exhibit 6, from 2009 through 2013, the largest filing status was Single, representing approximately 40% of full-year returns, followed by Married Filing Jointly, representing approximately 37%. In 2013, the Married Filing Jointly status represented the largest percentage of Tax Liability (68%) due to the presence of two tax filers and the potential for two incomes on a single return.

Exhibit 6 Married Filing Jointly Represented 68% of Income Tax Liability1
Tax Years 2009-2013

Millions

5

2013 Tax

$142 million

Liability

(2%)

$621 million

4

2%

2%

2%

2%

2%

$1.6 billion

(8%)

(22%)

21%

21%

21%

21%

20%

20%

3

2%

37% 2

36%

37%

37%

37%

41% 2013 % of Returns

Number of Returns

37%

1 40%

41%

40%

40%

41%

0 2009

2010

2011

2012

2013

$5.0 billion (68%)

Single

Married Filing Jointly

Head of Household/Qualifying Widow(er)

1Analysis is based on state data and includes full-year returns only. Source: DOR tax return records

Married Filing Separately

Household Size
State statute allows filers to claim a personal exemption for themselves and a $3,000 exemption per dependent. As shown in Exhibit 7, personal exemption amounts vary based on filing status. The total personal exemption amount for two married filers is $7,400, and this amount was increased, effective calendar year 2013, from $5,400.

Exhibit 7 Exemption and Dependent Amounts
Exemption Category
Personal Exemptions Married Filing Jointly Married Filing Separately Single or Head of Household/Qualifying Widow(er)
Dependent Exemptions Per Dependent
Source: O.C.G.A. 48-7-26 and Georgia Form 500

Amount
$7,400 $3,700 $2,700
$3,000

As shown in Exhibit 8, household size and composition varied by filing status. The average household size ranged from just over one person for Single filers to more than three individuals for Married Filing Jointly returns. The Head of Household/Qualifying Widow(er) status had the highest average number of

Analysis of State Individual Income Taxes

8

dependents at 1.7. Overall, household size averaged 2.2 individuals in 2013, based on an average of 1.4 personal exemptions and .8 dependent exemptions claimed.
The total personal and dependent exemption amount averaged $6,800 for full-year resident returns in 2013, based on an average of $4,400 for personal exemptions and $2,400 for dependent exemptions.3 As shown in Exhibit 8, the amounts varied by filing status. Although the amounts are generally proportional to the household size, the higher statutory exemption amount for married filers leads to a slightly higher total. It is worth noting that while married filers receive a higher personal exemption allowance, their standard deduction allowance is lower on a per-person basis, as noted on page 30.
Exhibit 8 Average Household Size1 Tax Year 2013

3.5

$12,000

3

$10,000

2.5 $8,000
2 $6,000
1.5
$4,000 1

0.5

$2,000

0 Single

Married Filing Jointly

Number of Dependent Exemptions

Number of Personal Exemptions
1Analysis is based on state data and includes full-year returns only. 2The Head of Household filing status also includes Qualifying Widow(er).
Source: DOR tax return records

Married Filing Separately

$0 Head of Household 2
Dependent Exemption Amount

Personal Exemption Amount

Number of Personal and Dependent Exemptions Total Amounts for Personal and Dependent Exemptions

3 The average dependent exemption amount includes households with zero dependents.

Analysis of State Individual Income Taxes

9

Chapter 2: Income
This chapter discusses the various types of income subject to state individual income tax. There are 15 sources of income reported on federal tax forms. To classify these sources for analysis, we consolidated them into five broad categories: wages from employment, investment income, business income, retirement income, and other sources such as alimony received. Descriptions and the dollar amount for the individual line items comprising each income type category can be found in Appendix B.
As shown in Exhibit 9, wages were the primary type of income in 2013. Wages were reported on 86% of full-year resident returns and represented 74% of reported income (referred to as Total Income on federal income tax returns). The remaining categories of income were reported on 20 to 30% of returns and represented 1 to 12% of Total Income.
Exhibit 9 Primary Income Type Was Wages1 Tax Year 2013

$1.6 billion (1%)

$15.1 billion (8%)

$10.9 billion (6%)
$21.9 billion (12%)

$140.1 billion (74%)

Income Type Category2

Number of % of Returns Returns

Wage Income

2,790,125 86%

Investment Income

965,757 30%

Business Income

934,449 29%

Retirement Income Other Income3

744,194 951,191

23% 29%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one income type. 3We excluded federal 1040 line 21, named Other income, from this analysis due to negative amounts totaling more than$3 billion.
Source: DOR tax return records
Exhibit 10 shows the distribution of income types by income level (quintiles). While wages were the most significant source of income for each quintile, wages as a percentage of Total Income decreased as income increased. Investment income was most prevalent in the top quintile, accounting for 8% of this quintile's income. Business income represented a similar percentage for the bottom (11%) and top (12%) quintiles but was a smaller percentage (1 to 6%) for the middle quintiles. Retirement income was distributed across all five quintiles, with 9 to 14% of filers in each quintile reporting some retirement income.

Analysis of State Individual Income Taxes

10

Exhibit 10 Income Type by Quintile1
Tax Year 2013

$120,000 $110,000

Wage Investment Business Retirement Other

$100,000

$90,000

$80,000

Average Income

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0

Quintile2
Approximate FAGI Range
Income Type

Bottom3
$12,000 and Below
% of Total % of

Second
$12,000 to $24,000
% of Total % of

Middle
$24,000 to $42,000
% of Total % of

Fourth
$42,000 to $80,000
% of Total % of

Top
Above $80,000
% of Total % of

Category

Returns (millions) Total Returns (millions) Total Returns (millions) Total Returns (millions) Total Returns (millions) Total

Wage

74% $3,296.01 78%

56% $9,689.14 81%

51% $18,328.59 86%

39% $30,539.89 79%

30% $77,873.55 68%

Investment

13% $106.06 3%

8% $153.51 1%

11% $261.43 1%

16% $697.42 2%

22% $9,335.43 8%

Business

23% $474.32 11%

17% $773.08 6%

12% $205.42 1%

12% $678.59 2%

14% $14,150.38 12%

Retirement

9% $348.75 8%

10% $1,058.00 9%

12% $2,316.12 11%

14% $6,044.29 16%

12% $11,958.19 10%

Other

8%

$7.03 0%

9% $246.91 2%

14% $244.96 1%

20% $455.44 1%

23% $1,328.99 1%

Total

$4,232.18

$11,920.64

$21,356.52

$38,415.63

1Analysis includes the 3,253,616 full-year residents for w hich federal 1040, 1040A, or 1040EZ return data w as available.

2Each quintile is equal to approximately 770,000 returns, or 20% of the overall population. We placed each return into a quintile based on the FAGI reported on the state tax return.

3Excludes individuals from the bottom quintile w ith negative Total Income.

$114,646.53

Source: DOR tax return records

Investment Income Investment income was reported on 30% of full-year resident returns and represented 6% of reported income. As shown in Exhibit 11, the most prevalent investment income was taxable interest, which was reported on approximately 79% of returns reporting investment income. However, capital gains represented the highest amount of investment income at $6.3 billion (58%).

Analysis of State Individual Income Taxes

11

Exhibit 11 Investment Income Types1
Tax Year 2013

$1.3 billion (12%)

$6.3 billion (58%)

$3.3 billion (30%)

Investment Income Number of % of

Type2

Returns Returns3

Taxable interest

759,594

79%

Ordinary dividends

503,703

52%

Capital gain or loss

431,661

45%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one type of investment income. 3This column shows the percentage of returns reporting the investment income type out of those returns that reported any investment income.
Source: DOR tax return records
Business Income Business income was reported on 29% of full-year resident returns and represented 8% of reported income. Owners of certain business types (such as sole proprietorships, partnerships, and S corporations) must claim their share of any business income and applicable tax on their individual returns. As shown in Exhibit 12, income from sole proprietorships was the most prevalent, appearing on approximately 70% of returns reporting business income. However, the category rental real estate, royalties, partnerships, S corporations, and trusts represented the highest amount of business income at $11 billion (71%) in 2013.

Analysis of State Individual Income Taxes Exhibit 12 Business Income Types1 Tax Year 2013
$4.4 billion (29%)
$11.0 billion (71%)

12

Business Income Type2

Number of % of Returns Returns3

Sole proprietorship
Rental real estate, Royalties, Partnerships, S corporations, Trusts Farm ing4

652,128 360,407
38,672

70% 39%
4%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one type of business income. 3This column shows the percentage of returns reporting the business income type out of those returns that reported any business income. 4We excluded farming income from the pie chart due to a negative total of more than $360 million.
Source: DOR tax return records
A filer's business income may be a gain (income) or loss. A loss occurs when a business's expenses are higher than the revenue it generates. As shown in Exhibit 13, the number of returns with positive income exceeded the number with losses for the categories of sole proprietorships (66%) and rental real estate, royalties, partnerships, S corporations, and trusts (58%). For farming, returns with losses (80%) exceeded returns with positive income. As a result, the total farming income reported was negative $367 million.

Analysis of State Individual Income Taxes

13

Exhibit 13 Returns with Business Income and Loss1
Tax Year 2013

Farming

Average Loss -$16,513

Average Income $17,956

Rental real estate, royalties, partnerships, S corporations, trusts
Sole proprietorship

Average Loss -$19,068

Average Income $67,073

Average Loss -$9,956

Average Income $15,632

250 200 150 100 50 0 Number of returns with loss

50 100 150 200 250 300 350 400 450

Number of returns with positive income

Thousands

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. Source: DOR tax return records

Retirement Income
Retirement income was reported on 23% of full-year resident returns and represented 12% of reported income. Retirement income includes Social Security benefits, pensions, and distributions from Individual Retirement Accounts. As shown in Exhibit 14, the distribution of income types for filers age 65 and older differed from other filers. Filers age 65 and older reported retirement income on 85% of returns in 2013, compared to 18% for filers under age 65. Similarly, retirement income was a more significant source of Total Income, representing 67% of Total Income for filers age 65 and older, compared to 9% for filers under age 65. While wages were no longer the primary source of income for filers age 65 and older, wages were reported on 39% of returns and accounted for 23% of Total Income. It is important to note that this analysis is based on income prior to the calculation of state adjustments that exclude Social Security and some additional income for filers age 65 and older.

Analysis of State Individual Income Taxes

14

Exhibit 14 Retirement Income was the Primary Income Type for Filers Age 65 or Older Tax Year 2013

One or both filer(s) is age 65 or older1

$49 million (0.5%)

$248 million
(3%)

$2.3 billion (23%)

$864 million
(9%)

$6.5 billion (67%)

Income Type Category2

Number of % of Returns Returns

Retirement Income

213,815

85%

Investment Income

157,573

63%

Wage Income

97,091

39%

Business Income Other Income3

69,348 27,592

28% 11%

1Analysis includes the 251,169 full-year returns for which federal 1040, 1040A, or 1040EZ return data was available.

Neither filer is age 65 or older1

$1.5 billion (1%)

$10.0

$15.3 billion

billion (6%) $15.3

(8%)

billion

(9%)

$137.9 billion (77%)

Income Type Category2

Number of % of Returns Returns

Wage Income Other Income3

2,693,034 923,599

90% 31%

Business Income

865,101

29%

Investment Income

808,184

27%

Retirement Income

530,379

18%

1Analysis includes the 3,002,447 full-year returns for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one income type. 3We excluded federal 1040 line 21, named Other income, from the analysis due to negative amounts totaling more than $3 billion.
Source: DOR tax return records
Other Income Other income was reported on 29% of full-year resident returns and represented 1% of reported income.4 As shown in Exhibit 15, the other income category includes line items for refunds of state and local income taxes, unemployment compensation, other
4 The percent of reported income excludes federal 1040 line 21, named Other income, due to negative amounts totaling more than $3 billion.

Analysis of State Individual Income Taxes

15

gains and losses, and alimony received, as well as income specifically listed as Other. The available data was not sufficient to conduct a comprehensive analysis of income specifically listed as Other due to the use of a free-form text field for the income descriptions. However, we were able to identify some income sources included in this field. Positive amounts in this field included income such as gambling winnings and jury duty pay. The negative amounts appeared to result primarily from carry forward of business income net operating loss. With some limitations, a filer may carry unused net operating loss to future years to reduce income in those years.
Exhibit 15 Other Income Types1 Tax Year 2013

$173 million (9%)

$688 million (36%)

$1.1 billion (55%)

Other Income Type2

Number of % of Returns Returns3

Taxable refunds, credits, or offsets

of state and local income taxes

795,291

74%

Other income4

198,131

19%

Unemployment compensation

164,249

15%

Other gain or (loss)4

42,834

4%

Alimony received

8,214

1%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one type of other income. 3This column shows the percentage of returns reporting other income types out of those returns that reported any type of other income. 4The pie chart excludes Other income (-$3.3 billion) and Other gains or loss (-$363 million) due to negative total amounts.
Source: DOR tax return records
Income Measures
The starting point for calculating Georgia's individual income tax is federal AGI. The federal AGI is Total Income reported for federal tax purposes reduced by the amount of federal adjustments claimed. For Georgia state income tax purposes, the filer then claims applicable state adjustments in order to calculate Georgia AGI. Finally, deductions and exemptions are claimed in order to calculate Taxable Income. Exhibit 16 shows statewide income at each income phase. During tax years 2009-2013, Georgia AGI represented approximately 90% of federal AGI, with state adjustments resulting in an average annual decrease of $20 billion. Additionally, Taxable Income represented 68% of Georgia AGI, with deductions and exemptions resulting in an average annual decrease of $60 billion. From 2009 to 2013, federal AGI for full-year resident returns increased by 13.5%, Georgia AGI increased by 10%, and Taxable Income increased by 4%.

Analysis of State Individual Income Taxes
Exhibit 16 Taxable Income Was Approximately 60% of Federal AGI1 Tax Years 2009-2013
$250

Billions

$200

$150

$100

$50

$0 2009

2010

2011

2012

FAGI GAGI Taxable Income
1Analysis is based on state data and includes full-year returns only.

Source: DOR tax return records

16
2013

Analysis of State Individual Income Taxes

17

Chapter 3: Taxes
This chapter discusses Tax Liability, which is the amount of state income tax that a filer owes once adjustments, deductions, personal and dependent exemptions, and credits are claimed. The chapter also addresses effective tax rates, which are calculated by dividing Tax Liability by federal AGI.

Tax Liability
As shown in Exhibit 17, statewide individual income Tax Liability increased by $1 billion (15%) from 2009 to 2013 for full-year resident returns. During this time period, Tax Liability increased each year, with the exception of 2013, when it decreased by 1%.

Exhibit 17 Statewide Tax Liability1 Tax Years 2009-2013
$8

Billions

$7

$6

$5

$4

$3

$2

$1

$0

2009

2010

2011

2012

1Analysis is based on state data and includes full-year returns only.

Source: DOR tax return records

2013

In 2013, income Tax Liability for full-year resident returns ranged from $0 to more than $1 million. As shown in Exhibit 18, approximately 936,000 returns (24%) had $0 Tax Liability, while approximately 842,000 returns (22%) had a Tax Liability greater than $2,500. A total of 130 returns (.003%) had a Tax Liability greater than $500,000.

Analysis of State Individual Income Taxes

18

Exhibit 18 Tax Liability Distribution1
Tax Year 2013

Number of Returns

1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

Tax Liability
1Analysis is based on state data and includes full-year returns only.
Source: DOR tax return records
As shown in Exhibit 19, the largest group of tax returns by income level (41%) had a federal AGI between $1 and $25,000. This group represented 9% of total federal AGI and paid 4% of the total Tax Liability. The number of returns in each income group decreased as federal AGI increased, with the exception of the last group, which includes all returns with a federal AGI greater than $300,000. This group represented 2% of returns, 20% of total federal AGI, and 24% of total Tax Liability.
Due to the progressive nature of the tax system, lower income groups generally pay a smaller percentage of total Tax Liability relative to their percentage of total federal AGI. In aggregate, returns with a federal AGI at or below $100,000 represented 47% of total federal AGI and 39% of total Tax Liability, and returns with a federal AGI above $100,000 represented 53% of total federal AGI and 61% of total Tax Liability.

Analysis of State Individual Income Taxes

19

Exhibit 19 Returns, Income, and Tax Liability Across Income Levels1 Tax Year 2013
$0 or less $1 to $25,000 $25,001 to $50,000 $50,001 to $75,000 $75,001 to $100,000 $100,001 to $125,000 $125,001 to $150,000 $150,001 to $175,000 $175,001 to $200,000 $200,001 to $225,000 $225,001 to $250,000 $250,001 to $275,000 $275,001 to $300,000 Over $300,000

FAGI Level

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

% of Returns % of FAGI % of Tax Liability

Number of % of

Tax Liability % of Tax

FAGI Level

Returns Returns

FAGI Total

% of FAGI

Total

Liability

$0 or less2

52,558

1.36% -$5,380,143,380

-2.46%

$1,601,737

0.02%

$1 to $25,000

1,559,985

40.51% $20,070,301,225

9.18%

$263,069,552

3.55%

$25,001 to $50,000

909,187

23.61% $32,662,457,407

14.94%

$892,006,905

12.05%

$50,001 to $75,000

486,759

12.64% $29,902,473,837

13.68%

$917,160,588

12.39%

$75,001 to $100,000

304,084

7.90% $26,327,648,580

12.04%

$848,321,434

11.46%

$100,001 to $125,000

185,033

4.80% $20,619,260,075

9.43%

$705,982,686

9.53%

$125,001 to $150,000

107,553

2.79% $14,670,934,525

6.71%

$527,910,197

7.13%

$150,001 to $175,000

67,560

1.75% $10,914,547,266

4.99%

$411,332,523

5.56%

$175,001 to $200,000

43,371

1.13%

$8,097,281,435

3.70%

$316,209,407

4.27%

$200,001 to $225,000

29,210

0.76%

$6,183,444,355

2.83%

$249,626,615

3.37%

$225,001 to $250,000

20,252

0.53%

$4,797,154,090

2.19%

$197,452,166

2.67%

$250,001 to $275,000

14,483

0.38%

$3,792,511,622

1.73%

$158,882,196

2.15%

$275,001 to $300,000

10,754

0.28%

$3,086,708,424

1.41%

$131,038,222

1.77%

Over $300,000

60,157

1.56% $42,863,273,949

19.61% $1,783,673,390

24.09%

Total

3,850,946 100.00% $218,607,853,410 100.00% $7,404,267,618 100.00%

1Analysis is based on state data and includes full-year returns only. 2Tax filers may have $0 or negative federal AGI but have a positive Tax Liability due to state adjustments that increase Taxable Income.

Source: DOR tax return records

Effective Tax Rates
Effective tax rate is the rate at which a filer is taxed on income (federal AGI) and is calculated by dividing the filer's Tax Liability by federal AGI. The effective tax rate is significantly influenced by adjustments, deductions, exemptions, and credits, which

Analysis of State Individual Income Taxes

20

lower a filer's effective tax rate. The effective tax rate is a more accurate reflection of the rate at which a filer is taxed than the marginal tax rate.

Exhibit 20 shows the average effective tax rate for each income quintile. Georgia's individual income tax brackets are progressive, meaning that as Taxable Income increases, the tax rate increases. As shown in Exhibit 20, the effective tax rate in 2013 increased as income increased. Filers in the bottom quintile had the lowest average effective tax rate (.5%), while filers in the top quintile had the highest average effective tax rate (3.6%). Also shown is the average effective tax rate for all full-year returns.

Exhibit 20 Average Effective Tax Rates by Income Quintile1 Tax Year 2013
7%
6%

Top Marginal Tax Rate

5%

4%

3.6%

3.0%

3%

2.6%

2.2%

2% 1.4%

1%

0.5%

0%

Quintile

Bottom

Second

Middle

Fourth

Top

All

Approximate FAGI range

$12,000 and Below

$12,000 to $24,000

$24,000 to $42,000

$42,000 to Above $80,000 $80,000

1Analysis is based on state data and includes full-year returns only. Income quintiles and effective tax rates are based on FAGI, and returns with $0 or negative FAGI have been excluded.
Source: DOR tax return records

As shown in Exhibit 21, effective tax rates vary by filing status. A filer qualifies for certain deductions and exemptions depending on their marital status and number of dependents. For example, a filer qualifies for Head of Household status if the filer has a single income, pays more than half the cost of a home, and has a dependent person living in the home. For each dependent person, the filer may claim a $3,000 exemption, thereby lowering the filer's Tax Liability.

Analysis of State Individual Income Taxes

21

Exhibit 21 Effective Tax Rates by Filing Status1
Tax Year 2013

3.0% 2.5% 2.0% 1.5%

2.2%

2.6%

2.9%

1.7%

1.0%

0.5%

0.0%

Single

Married Filing Jointly Married Filing Separately

Head of Household 2

1Analysis is based on state data and includes full-year returns only. Effective tax rates are based on FAGI,
and returns with $0 or negative FAGI have been excluded. 2The Head of Household filing status includes Qualifying Widow(er).

Source: DOR tax return records

Analysis of State Individual Income Taxes

22

Chapter 4: Adjustments

Federal Adjustments
Federal adjustments are subtractions from Total Income to compute federal AGI that filers may take if they qualify. As shown in Exhibit 22, approximately 26% of full-year resident returns claimed federal adjustments to income in 2013. On average, a return with federal adjustments subtracted approximately $3,000 from Total Income to calculate federal AGI. Federal adjustments totaled $2.5 billion for these returns. The three adjustments related to self-employment accounted for 55% of the total federal adjustments. These adjustments relate to self-employment tax, health insurance premiums, and retirement plans. For a description of each federal adjustment, see Appendix C.

Exhibit 22 Federal Adjustments to Income1

Tax Year 2013

Average Total Amount % of

Federal Adjustment

Number of % of Amount Returns2 Returns Claimed

Claimed (millions)

Total Amount

Deductible Part of Self-Employment Tax

435,680 13.39%

$1,191

$519.08 20.85%

Self-Employed Health Insurance Self-Employed SEP, SIMPLE, and Qualified Plans

74,686 15,406

2.30% 0.47%

$6,572 $22,709

$490.86 $349.85

19.72% 14.05%

Student Loan Interest Individual Retirement Account Contributions

239,740 51,484

7.37% 1.58%

$1,016 $4,464

$243.54 $229.83

9.78% 9.23%

Alimony Paid

12,032

0.37% $17,523

$210.83

8.47%

Domestic Production Activities3

9,510

0.29% $16,329

$155.29

6.24%

Tuition and Fees

41,337

1.27%

$2,640

$109.15

4.38%

Health Savings Accounts

25,278

0.78%

$2,842

$71.83

2.89%

Moving Expenses

18,370

0.56%

$2,481

$45.58

1.83%

Educator Expenses Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials Penalty on Early Withdrawal of Savings

106,350
4,474 14,423

3.27%
0.14% 0.44%

$254
$3,884 $201

$27.04
$17.38 $2.90

1.09%
0.70% 0.12%

Total Federal Adjustments2

842,766 25.90%

$2,935

$2,473.16 100.00%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available.

2The total number of adjustments does not equal the total number of returns because returns may include multiple adjustments.

3Georgia does not allow the federal adjustment for domestic production activities, so these filers must use a state adjustment to

reverse this item when calculating their Georgia AGI.

Source: DOR tax return records

Exhibit 23 shows the distribution of federal adjustments by income level in 2013. Federal adjustments were claimed by a larger percentage of the top two quintiles, which have a federal AGI over $42,000. Additionally, the top quintile claimed approximately 60% of the total federal adjustment amount claimed. For the adjustments related to self-employment, the distribution varied. The adjustment for self-employment tax was more prevalent in the lower quintiles, while adjustments for retirement plans and health insurance were more prevalent in the upper quintiles. The student loan interest adjustment was generally more prevalent as income increased,

Analysis of State Individual Income Taxes

23

but its usage decreased at the top quintile. Under the federal income tax code, filers must compute a preliminary federal AGI, and if this preliminary AGI is below $75,000, then the filer may claim the adjustment for student loan interest, if applicable, to compute the final federal AGI.5

Exhibit 23 Federal Adjustments by Income Quintile1 Tax Year 2013

60% 55%

% of quintile claiming adjustment(s) % of total adjustment amount

Average2 $6,464

50%

45%

40%

35%

30%

25%

20%

15%

10%

Average2 $1,201

5%

Average2 $1,236

Average2 $1,723

Average2 $2,064

0%

Quintile
Approximate FAGI Range
Federal Adjustment Deductible Part of Self-Employment Tax

Bottom

Second

Middle

Fourth

Top

$12,000 and Below

$12,000 to $24,000

$24,000 to $42,000

$42,000 to $80,000

Above $80,000

# of Total Amount # of Total Amount # of Total Amount # of Total Amount # of Total Amount Returns3 (millions) Returns3 (millions) Returns3 (millions) Returns3 (millions) Returns3 (millions)

109,616

$56.71 107,004

$89.08 53,856

$55.12 65,232

$73.47 99,972

$244.70

Self-Employed Health Insurance

8,155

$33.26 6,429

$23.91 8,874

$37.79 13,912

$70.83 37,316

$325.06

Self-Employed SEP, SIMPLE, and Qualified Plans Student Loan Interest Individual Retirement Account Contributions Alimony Paid Domestic Production Activities4 Tuition and Fees

192 13,850
1,582 717 190
10,760

$2.43 $12.93
$5.03 $10.84
$.41 $32.90

249 25,943
3,949 632 215
5,761

$1.15 $23.22 $11.16
$6.06 $.27
$15.84

555 54,440
9,657 1,271
468 5,843

$3.46 $54.94 $30.46 $11.05
$.89 $15.66

1,434 81,887 15,676
2,865 1,249 8,647

$13.05 $84.13 $62.12 $27.94
$3.25 $20.75

12,976 63,620 20,620
6,547 7,388 10,326

$329.77 $68.33
$121.06 $154.95 $150.48
$24.01

Health Savings Accounts

522

$1.52 1,049

$1.70 3,003

$4.84 5,795

$11.47 14,909

$52.31

Moving Expenses

2,197

$5.73 3,647

$7.03 4,833

$10.03 4,345

$10.46 3,348

$12.34

Educator Expenses

2,937

$.65 6,579

$1.52 16,018

$3.84 36,648

$9.17 44,168

Certain Business Expenses of

Reservists, Performing Artists, and

559

$2.24

642

$2.42

905

$3.73 1,149

$4.40 1,219

Fee-Basis Government Officials

Penalty on Early Withdrawal of Savings

2,110

$.61 1,964

$.35 2,442

$.41 3,590

$.64 4,317

Total Federal Adjustments3

137,573

$165.25 148,563

$183.69 134,741

$232.21 189,777

$391.69 232,112

1Analysis includes the 3,253,616 full-year residents for w hich federal 1040, 1040A, or 1040EZ return data w as available. 2Amount shpw n represents the average net state adjustment for the given quintile w hen an adjustment w as claimed. 3The total number of adjustments does not equal the total number of returns because returns may include multiple adjustments. 4Georgia does not allow the federal adjustment for domestic production activities, so these filers must use a state adjustment to reverse this item w hen calculating their Georgia AGI.

$11.85
$4.59
$.89 $1,500.33

Source: DOR tax return records

5 For Married Filing Jointly returns, both spouses may qualify separately for the student loan interest adjustment. As a result, these filers may have a combined federal AGI that places them in the top quintile.

Analysis of State Individual Income Taxes

24

State Adjustments
State adjustments may be either additions or subtractions to federal AGI and generally result from differences between the federal and state tax codes. Additions represent income taxed by Georgia that is not taxed at the federal level, such as interest paid on other state governments' bonds. Subtractions represent income taxed at the federal level that is not taxed by Georgia, such as Social Security benefits. After state adjustments are added to and/or subtracted from a filer's federal AGI, the resulting calculation is the filer's Georgia AGI.

Because Georgia's income tax return begins with federal AGI, most federal adjustments are allowed for Georgia with one exception. The domestic production activities adjustment allowed on a federal return is not permitted for Georgia. As a result, filers claiming this federal adjustment must use a state adjustment to reverse this item when calculating their Georgia AGI.

As shown in Exhibit 24, approximately 24% of full-year resident returns claimed state adjustments to income in 2013. On average, a filer making state adjustments subtracted more than $26,000 from federal AGI to calculate Georgia AGI. In total, state adjustments resulted in a net income reduction of $24.5 billion for these returns. Approximately 193,000 returns claimed a total of $5.9 billion in additions, and approximately 882,000 returns claimed a total of $30.3 billion in subtractions.

Exhibit 24 State Adjustments to Income1
Tax Year 2013

State Adjustment

Number of Returns2

% of Returns

Average Amount Claimed

Total Amount Claimed (millions)

Additions to Income Interest on Non-Georgia Municipal and State Bonds
Federal Deduction for Domestic Production Activities

64,440 10,942

1.67% 0.01%

$6,321 $17,220

$407.35 $188.42

Lump Sum Distributions

397

0.28%

$17,344

$6.89

Other Additions Total Additions2

140,133 193,491

3.64% 5.02%

$37,447 $30,235

$5,247.53 $5,850.19

Subtractions from Income

Retirement Income Exclusion

668,181 17.35% $27,479

$18,360.95

Social Security Benefits

434,152 11.27% $13,325

$5,785.12

Interest on U.S. Obligations

43,604

0.85%

$2,093

$91.28

Georgia Education Savings Plan

32,604

1.13%

$2,724

$88.82

Other Subtractions

212,560

5.52% $28,330

$6,021.72

Total Subtractions2

881,933 22.90% $34,411

$30,347.89

Net State Adjustments2

930,239 24.16% -$26,335

-$24,497.70

1Analysis is based on state data and includes full-year returns only. 2The total number of adjustments does not equal the total number of returns because returns may include
multiple adjustments.

Source: DOR tax return records

Analysis of State Individual Income Taxes

25

In 2013, the largest state adjustments were subtractions for retirement income ($18.4 billion) and Social Security benefits ($5.8 billion), which represented 80% of state adjustment subtractions. The adjustment categories Other Additions ($5.2 billion) and Other Subtractions ($6.0 billion) also represented significant adjustments. However, the audit team was unable to analyze adjustments in these categories. The tax form allows the filer to use a free-form text field to describe the adjustment, and this formatting prevented us from determining the types of adjustments that comprise these categories. However, through a limited review of the free-form text field, we were able to attribute some of the other adjustments to differences in calculations between state and federal tax codes for items such as depreciation and net operating loss. For a description of each state adjustment, see Appendix D.
Exhibit 25 shows the distribution of state adjustments by income level in 2013. As federal AGI increased, state adjustments were generally claimed more frequently and for a greater amount. The top quintile claimed the highest number of both additions and subtractions to income. It also claimed the highest amount of subtractions, while the bottom quintile claimed the highest amount of additions.

Analysis of State Individual Income Taxes

26

Exhibit 25 State Adjustments by Income Quintile1
Tax Year 2013

50% 45%

% of quintile claiming adjustment(s) % of total adjustment amount

Average2 $38,397

40%

35% 30%

Average2 $32,206

25%

20% 15% 10%
5%

Average2 $7,129

Average2 $12,305

Average2 $19,255

0%

Quintile
Approximate FAGI Range
Additions to Income

Bottom

Second

Middle

Fourth

Top

$12,000 and Below

$12,000 to $24,000

$24,000 to $42,000

$42,000 to $80,000

Above $80,000

# of Total Amount # of Total Amount # of Total Amount # of Total Amount # of Total Amount Returns3 (millions) Returns3 (millions) Returns3 (millions) Returns3 (millions) Returns3 (millions)

Interest on Non-Georgia Municipal and State Bonds Federal Deduction for Domestic Production Activities Lump Sum Distributions

4,133 217 52

$21.99 $0.53 $0.98

2,572 253 48

$6.95 $0.34 $0.59

4,251 538 84

$14.39 10,187

$1.06 $0.87

1,409 106

$39.89 43,297

$3.74 $1.47

8,525 107

$324.13 $182.75
$2.97

Other Additions Total Additions3 Subtractions from Income

18,618 21,563

$3,027.73 $3,051.23

9,242 11,631

$78.93 $86.81

14,193 18,168

$125.10 $141.42

26,157 35,529

$218.78 71,923 $263.88 106,600

$1,796.99 $2,306.84

Retirement Income Exclusion

100,797

$686.67 105,717

$1,399.13 113,767

$2,285.04 162,125

$4,978.24 185,775

$9,011.88

Social Security Benefits

2,465

$14.08 39,744

$69.14 100,468

$506.10 142,609

$1,968.10 148,866

$3,227.74

Interest on U.S. Obligations

4,413

$4.03 3,054

$3.68 4,466

$6.39 9,133

$17.76 22,538

$59.41

Georgia Education Savings Plan

469

$0.97

667

$1.21 1,212

$2.01 3,758

$6.70 26,498

$77.39

Other Subtractions Total Subtractions3

23,172 118,897

$3,224.02 15,490 $3,929.77 118,803

$112.13 24,878 $1,585.29 142,818

$189.25 45,649 $2,988.79 210,517

$362.34 103,371 $7,333.14 290,898

$2,133.98 $14,510.40

Net State Adjustments3

123,238

-$878.54 121,773

-$1,498.48 147,874

-$2,847.37 219,503

-$7,069.26 317,851 -$12,203.56

1Analysis is based on state data and includes full-year returns only. 2Amount show n represents the average net state adjustment for the given quintile w hen an adjustment w as claimed. 3The total number of adjustments does not equal the total number of returns because returns may include multiple adjustments.

Source: DOR tax return records

The adjustments for the retirement income exclusion and Social Security benefits were the two largest state subtractions. The retirement income exclusion may be claimed by filers 62 years of age or older and by filers with a disability that prevents gainful employment. As shown in Exhibit 26, filers may exclude up to $35,000 or $65,000 based on how they qualify for the adjustment. While qualified filers may exclude most types of income as part of the adjustment, filers may exclude no more than $4,000 in wages or other earned income. For Married Filing Jointly returns, both spouses may claim the maximum excluded amount if each qualifies for the adjustment.

Analysis of State Individual Income Taxes

27

Additionally, filers who receive Social Security benefits that are included in federal AGI may exclude these benefits from Georgia AGI.6

Exhibit 26 Retirement Income Exclusion Tax Year 2013

Qualification Category 65 or older 62-64 years old Disabled, Below 62

Maximum Exclusion $65,000 $35,000 $35,000

Source: O.C.G.A. 48-7-27

Both the retirement income exclusion and the subtraction for Social Security benefits were utilized by each quintile, although these adjustments were more prevalent in the higher quintiles. Exhibit 27 shows returns by quintile that claimed the retirement income exclusion, as well as their federal AGI and adjustments for Social Security benefits. The prevalence of the two adjustments and the median amount claimed increased as income increased. The two adjustments, when taken together, represented more than half of federal AGI for each quintile. In the top quintile, approximately 5,000 returns used the retirement income exclusion and the subtraction for Social Security benefits to exclude a total of $150,000 or more in income.

6 Filers with a federal AGI of less than $25,000 are generally not taxed on Social Security benefits at the federal level and are not required to report these benefits as part of their income. The actual amount subject to federal taxation is determined by filing status and income level.

Analysis of State Individual Income Taxes

Exhibit 27 Retirement Income Exclusion and Social Security Benefits1
Tax Year 2013

Federal AGI

Social Security Benefits3

$120,000

28
Retirement Income Exclusion

$100,000

$80,000

58%

$60,000 $40,000

79%

$20,000

75%

82%

84%

$0

Quintile

Bottom

Second

Middle

Fourth

Top

Approximate FAGI Range

$12,000 and Below

$12,000 to $24,000

$24,000 to $42,000

$42,000 to $80,000

Above $80,000

# of

Median

# of

Median

# of

Median

# of

Median

# of

Median

Returns Amount2 Returns Amount2 Returns Amount2 Returns Amount2 Returns Amount2

Federal AGI

100,797 $6,711 105,717 $17,250 113,767 $32,000 162,125 $59,447 185,775 $118,026

Retirement Income Exclusion 100,797 $5,031 105,717 $14,183 113,767 $23,210 162,125 $35,000 185,775 $51,145

Social Security Benefits 3

1,516

$0 37,510

$0 89,935 $3,733 129,389 $12,257 140,941 $17,584

1Analysis is based on state data and includes full-year returns w here a retirement income exclusion w as claimed. 2The median amount is the amount for the middle return in each quintile. There are an equal number of returns above and below the median. Due to the prevalence of negative FAGI in the bottom quintile, median w as used instead of average for this analysis. 3Includes Social Security and railroad retirement benefits included in FAGI. Low -income individuals do not include Social Security benefits in FAGI, so it w ill not be claimed as an adjustment.

Source: DOR tax return records

While the average amount claimed for the retirement income exclusion was $27,479 for 2013, some filers did claim the maximum. Of the 668,181 returns claiming the retirement income exclusion, at least one filer claimed the maximum exclusion for their qualification category on approximately 94,000 returns (14%).
The retirement income exclusion adjustment, the Social Security benefits adjustment, and the additional standard deduction of $1,300 for filers age 65 or older all decrease a filer's Taxable Income. As a result of these provisions, qualifying filers have a lower effective tax rate. As shown in Exhibit 28, the effective tax rate for filers age 65 or older (.4%) was lower than for filers under age 65 (2.4%). The highest effective tax rate for filers age 65 or older was 1.2% for the top quintile.

Analysis of State Individual Income Taxes

29

Exhibit 28 Effective Tax Rates for Filers Age 65 or Older1 Tax Year 2013
3.0%

2.5%

2.4%

2.0%

1.5%

1.0%

0.5%
0.0% Quintile

0.0% Bottom

0.1% Second

Approximate $12,000 and $12,000 to

FAGI range

Below

$24,000

0.4%
Middle $24,000 to
$42,000

0.7%

1.2%

0.4%

Fourth

Top

Average ETR Average ETR

65 or older under 65

$42,000 to Above $80,000 $80,000

1Analysis is based on state data and includes full-year returns only. Income quintiles and effective tax rates (ETRs) are based on FAGI, and returns with $0 or negative FAGI have been excluded. The 65 or older group includes returns where one or both filers is age 65 or older.
Source: DOR tax return records

Analysis of State Individual Income Taxes

30

Chapter 5: Deductions

Filers subtract either a standard or itemized deduction from their Georgia AGI.

Georgia standard deduction amounts are fixed dollar amounts in state statute and

vary by filing status. Itemized deductions are eligible expenses that filers may report

on their income tax returns. For federal tax purposes, filers are

Georgia Standard Deduction: Single and Head of Household/Qualifying Widow(er) filers may claim a $2,300
deduction. Married filers may claim a $1,500 deduction if filing separately or

allowed a choice between the itemized and standard deduction and generally choose whichever is greater. State law requires filers to use the same deduction type on the state return that was used on the federal return.

$3,000 if filing jointly. Filers claiming the standard deduction may qualify for one or more additional deductions of $1,300, which applies if the filer and/or their spouse is 65 or older and/or blind.

As shown in Exhibit 29, for tax year 2013, full-year residents claimed approximately $40 billion in standard and itemized deductions. Approximately $7 billion (17%) was attributable to a standard deduction, while $33 billion (83%) was attributable to itemized deductions.

Exhibit 29 Itemized Deductions Were 83% of the Total Deduction Amount1
Tax Year 2013

$1.4 billion (4%)

$5.3 billion (13%)

Total Deduction

Amount

8%

Standard Deduction Regular Only

% of

56%

36% Returns

Standard Deduction Regular + Additional2

$33.0 billion (83%)

Itemized Deductions

1Analysis is based on state data and includes full-year returns only. 2Filers may claim additional standard deduction amounts if age 65 or older and/or blind.
Source: DOR tax return records
Filers who itemized claimed an average deduction amount of approximately $24,000, while filers who utilized the standard deduction claimed an average deduction amount of approximately $2,700. Filers who itemized had an average federal AGI of approximately $110,000, while filers who utilized the standard deduction had an average federal AGI of approximately $27,000.
Itemized Deductions As shown in Exhibit 30, approximately 36% of full-year resident returns itemized federal deductions in 2013. The most frequently claimed deductions were taxes paid (36%) and gifts to charity (31%). The deductions with the largest total amount claimed were taxes paid (35%) and interest paid (28%). Other deductions, such as

Analysis of State Individual Income Taxes

31

medical and dental expenses and casualty and theft losses, had high average amounts claimed but were claimed by relatively few filers. Descriptions and amounts for the individual line items comprising each deduction category are shown in Appendix E.

Exhibit 30 Itemized Deductions1 Tax Year 2013

Itemized Deductions Taxes Paid

Number of Returns2
1,172,106

% of Returns
36.02%

Average Amount Claimed
$8,377

Total Amount Claimed (millions)
$9,819

% of Total Amount
34.78%

Interest Paid

927,033

28.49%

$8,395

$7,782 27.56%

Gifts to Charity

1,005,480

30.90%

$5,861

$5,893 20.87%

Job Expenses and Certain Miscellaneous Deductions3

385,737

11.86%

$7,603

$2,933 10.39%

Medical and Dental Expenses

263,417

8.10%

$8,212

$2,163

7.66%

Other Miscellaneous Deductions4

19,255

0.59% $10,561

$203

0.72%

Casualty and Theft Losses

2,759

0.08% $14,866

$41

0.15%

Total Itemized Deductions2

1,174,406

36.10% $24,040

$28,232 100.00%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2 The total number of deductions does not equal the total number of returns because returns may include multiple
deductions. Also, the total amount claimed is less than the sum of individual lines because certain deductions are limited
for high-income filers, but the data was not sufficient to determine the extent to which the individual lines were affected. 3This line includes items such as tax preparation fees and investment expenses. 4This line includes items such as gambling losses and premiums on taxable bonds.

Source: DOR tax return records

The deduction for taxes paid represented the largest category for itemized deductions in 2013. The individual line items comprising this category are shown in Exhibit 31. Nearly all returns (99%) claiming taxes paid included an amount for other state and local taxes. This line item represented 67% of the total deduction amount for taxes paid. Real estate taxes were the second largest line item, claimed on 84% of returns claiming taxes paid and representing 27% of the total.

Analysis of State Individual Income Taxes

32

Exhibit 31 Deductions for Taxes Paid1
Tax Year 2013

$2.7 billion (27%)
$6.6 billion (67%)

$203 million (1%)
$412 million (4%)

Taxes Paid2

Number of % of Returns Returns3

Other s tate & local tax 1,159,776

99%

Real es tate tax

990,241

84%

Pers onal property tax Other taxes paid4

793,804 202,993

68% 17%

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one line item in the deduction for taxes paid category. 3This column shows the percentage of returns claiming the applicable taxes paid line out of those returns that claimed any type of deductions for taxes paid. 4The deduction for Other taxes paid includes miscellaneous taxes written in by the filer.
Source: DOR tax return records

Exhibit 32 shows the prevalence of itemized deductions by quintile. With the exception of medical and dental expenses and casualty and theft losses, the top quintile had the highest prevalence of each deduction in terms of both the number of returns and the amount claimed.

Analysis of State Individual Income Taxes

33

Exhibit 32 Itemized Deductions by Income Quintile1 Tax Year 2013
% of quintile claiming itemized deduction(s) 90%

% of total itemized deduction amount

80% 70% 60% 50%

Average2 $31,994

40%

30% 20% 10%
0%

Average2 $20,442

Average2 $16,180

Average2 $15,467

Average2 $17,696

Quintile
Approximate FAGI Range
Itemized Deduction

Bottom
$12,000 and Below
Total # of Amount Returns3 (millions)

Second
$12,000 to $24,000
Total # of Amount Returns3 (millions)

Middle
$24,000 to $42,000
Total # of Amount Returns3 (millions)

Fourth
$42,000 to $80,000
Total # of Amount Returns3 (millions)

Top

Above $80,000

Total

# of

Amount

Returns3 (millions)

Taxes Paid

35,886 $167.33 66,913 $157.75 176,131 $534.65 344,658 $1,577.69 548,518 $7,381.72

Interest Paid

22,996 $219.90 36,021 $224.10 112,652 $708.89 275,252 $1,863.16 480,112 $4,766.10

Gifts to Charity

16,952

$28.17 49,764 $131.64 142,338 $453.01 294,424 $1,095.19 502,002 $4,184.79

Job Expenses and Certain Miscellaneous Deductions

18,079 $85.00 31,714 $193.01 84,390 $577.31 127,193 $910.13 124,361 $1,167.22

Medical and Dental Expenses 24,879 $231.70 34,598 $377.04 67,531 $438.71 85,928 $625.35 50,481 $490.31

Other Miscellaneous Deductions

753

$22.36

898

$4.32 2,331

$10.05 4,553

$22.11 10,720 $144.53

Casualty and Theft Losses

262

$4.07

318

$2.84

709

$6.57

872

$9.12

598

$18.42

Total Itemized Deductions3

37,106 $758.51 67,411 $1,090.70 176,449 $2,729.19 344,860 $6,102.72 548,580 $17,551.26

1Analysis includes the 3,253,616 full-year returns for w hich federal 1040, 1040A, or 1040EZ return data w as available. 2Amount show n represents the average itemized deduction total for the given quintile, w hen itemized deductions w ere claimed. 3The total number of deductions does not equal the total number of returns because returns may include multiple deductions. Total amount claimed is less than the sum of individual lines because certain deductions are limited for high-income filers, but the data w as not sufficient to determine the extent to w hich the individual lines w ere affected.

Source: DOR tax return records

Filers who itemize deductions on their federal returns may claim the same itemized deduction amount on their state return with two exceptions. The total deduction claimed must be reduced by the amount of deductions for non-Georgia taxes and the amount of investment interest expense related to income that is exempt from Georgia taxes. These changes reduce the amount of itemized deductions claimed, thereby increasing Taxable Income. In 2013, state adjustments to federal itemized deductions impacted approximately 71,000 returns, or 5% of the returns itemizing deductions. They reduced the total amount of itemized deductions claimed by approximately $286 million, or 0.86% of the total itemized deduction amount claimed.

Analysis of State Individual Income Taxes

34

Chapter 6: State Tax Credits
Tax credits directly reduce a filer's Tax Liability on a dollar-for-dollar basis. Once filers calculate their gross Tax Liability, filers then subtract any applicable tax credits to reduce their final Tax Liability. All state tax credits are nonrefundable, which means they can only be used to reduce Tax Liability to zero. Previously, Georgia had a refundable low income tax credit, but effective January 1, 2010, it is no longer refundable.
Credits may be characterized as individual or pass-through. Individual credits such as the low income credit are credits that can only be claimed by individual filers. Passthrough credits are claimed by businesses but may be passed to individual owners of sole proprietorships, partnerships, and S corporations. These owners claim their share of the business income, as well as their share of the pass-through credits, on their individual returns. Some credits, such as the low- or zero-emission vehicle credit, may be claimed by individuals or businesses. In addition, some pass-through credits can be transferred or sold to other Georgia taxpayers.
For tax year 2013, full-year residents claimed more than $575 million in state tax credits on their returns.7 Exhibit 33 shows the top state tax credits claimed, and Appendix F includes a listing and description of each credit claimed. Individual tax credits were claimed with a much higher frequency (33% of returns) than passthrough credits (.2% of returns). However, filers claiming pass-through credits claimed significantly larger amounts on average. As a result, pass-through credits represented 45% of the total dollar amount of credits claimed. It is important to note that these amounts are limited to credits claimed on individual income tax returns. Some credits may also be claimed against corporate income taxes and/or other state taxes.
The low income credit was claimed on the highest number of returns (25%) but had the lowest average amount claimed ($22). This credit allows low-income tax filers to reduce their Tax Liability by up to $26 each for the filer and any dependents. The low income housing credit had the highest average amount claimed at $66,788 and was claimed on 935 returns (0.02%). This credit may be claimed by filers who own, either directly or indirectly, developments that receive the federal low income housing tax credit. In 2013, the largest individual tax credit by total dollar amount claimed, approximately $209 million (36%), was the other state(s) tax credit. This credit may be claimed by taxpayers with income that is taxed by other states. The largest passthrough credit by total dollar amount claimed, approximately $132 million (23%), was the film tax credit. This credit may be claimed by production companies with at least $500,000 of qualified expenditures in state-certified production.8 The film tax credit is fully transferable, meaning that it may be transferred or sold to any Georgia taxpayer.

7 Our analyses are based on amounts filers claimed on their individual income tax returns. As a result, the amounts do not take into account excess claims for credits that exceeded a filer's Tax Liability.
8 Georgia also offers the film tax credit for qualified interactive entertainment production, which has stricter qualifications and was claimed on fewer returns. See Appendix F for additional information.

Analysis of State Individual Income Taxes

35

Exhibit 33 Top State Tax Credits1
Tax Year 2013

State Tax Credits Individual Credits

Number of Returns2

% of Returns

Average Total Amount

Amount

Claimed

Claimed (millions)

% of Total Claimed

Other State(s) Tax Credit
Child and Dependent Care Expense Credit

69,640 198,898

1.81% 5.16%

$3,005 $161

$209.29 $32.02

36.36% 5.56%

Qualified Education Expense Credit Low Income Credit Low/Zero Emission Vehicle Credit3 All Other Credits2 Total Individual Credits2

14,253 979,031
3,651 11,895 1,253,902

0.37% 25.42%
0.09% 0.31% 32.56%

$2,009 $22
$4,660 $712 $253

$28.63 $21.28 $17.01
$7.89 $317.11

4.97% 3.70% 2.96% 1.37% 55.09%

Pass-Through Credits

Film Tax Credit Low Income Housing Credit Land Conservation Credit Employer's Jobs Tax Credit

2,345 935 888 700

0.06% 0.02% 0.02% 0.02%

$56,249 $66,788 $34,317 $14,118

$131.90 $62.45 $30.47 $9.88

22.92% 10.85%
5.29% 1.72%

Employer's Credit for Approved Employee Retraining All Other Credits2
Total Pass-Through Credits2

2,017
3,275 8,202

0.05%
0.09% 0.21%

$4,584
$4,434 $31,514

$9.25
$14.52 $258.48

1.61%
2.52% 44.91%

Total Credits2

1,259,098

32.70%

$457

$575.59 100.00%

1Analysis is based on state data and includes full-year returns only. 2The total number of credits does not equal the total number of returns because returns may include multiple credits.
Additional credits shown in Appendix F but not shown here are also included in the total lines. 3The low/zero emission vehicle credit has been eliminated, effective July 1, 2015.

Source: DOR tax return records

Exhibit 34 shows the distribution of the top state tax credits by quintile in 2013. Returns in the bottom and second quintiles were more likely to claim a tax credit, with 64% and 65% of returns claiming a credit, respectively. This occurrence is primarily due to the high percentage of returns in these quintiles claiming the low income credit. However, the total amount of credits claimed by these two quintiles represented only 5% of the total. Conversely, 11% of returns in the top quintile claimed a tax credit, but due to the higher average credit amount, these returns represented 87% of the total dollar amount of credits claimed. Additionally, individual tax credits were claimed more frequently by the lower quintiles, while pass-through credits were claimed more frequently by the top quintile.

Analysis of State Individual Income Taxes

36

Exhibit 34 Top State Tax Credits by Income Quintile1
Tax Year 2013

100%

% of quintile claiming credit(s)

90%

% of total credits claimed

Average2 $3,831

80%

70%

60%

50%

40%

30%

20%

10% 0%

Average2 $35

Average2 $20

Average2 $248

Average2 $404

Quintile

Bottom

Second

Middle

Fourth

Top

Approximate FAGI Range Individual Credits

$12,000 and Below

Total

# of

Amount

Returns3 (millions)

$12,000 to $24,000
Total # of Amount Returns3 (millions)

$24,000 to $42,000
Total # of Amount Returns3 (millions)

$42,000 to $80,000
Total # of Amount Returns3 (millions)

Above $80,000
Total # of Amount Returns3 (millions)

Other State(s) Tax Credit Child and Dependent Care Expense Credit Qualified Education Expense Credit Low Income Credit Low/Zero Emission Vehicle Credit Adoption of a Foster Child Credit Eligible Single Family Residence Credit Georgia National Guard Insurance Credit Total Individual Credits3

2,812 66 25
493,292 *
50 170 225 494,587

$1.48 $0.01 $0.02 $14.97
* $0.16 $0.08 $0.08 $16.88

5,781 15,021
59 485,739
16 99 307 287 498,247

$1.29 $1.39 $0.03 $6.31 $0.04 $0.33 $0.13 $0.10 $9.80

8,660 51,809
380 *
71 216 575 465 62,285

$4.13 $9.08 $0.27
* $0.27 $0.70 $0.23 $0.19 $15.09

14,494 54,642
1,541 *
381 530 816 590 72,194

$13.64 $8.87 $1.89 * $1.55 $1.81 $0.29 $0.24
$28.57

37,893 77,360 12,248
* 3,183
562 1,073
403 126,589

$188.75 $12.67 $26.42 * $15.16 $1.90 $0.27 $0.16
$246.78

Pass-Through Credits

Film Tax Credit

3

$0.05

*

*

3

$0.02

11

$0.03

2,328

$131.80

Low Income Housing Credit

8

$0.07

*

*

*

*

13

$0.02

914

$62.36

Land Conservation Credit

*

*

3

$0.04

12

$0.21

15

$0.30

858

$29.92

Employer's Jobs Tax Credit

15

$0.14

6

$0.02

12

$0.06

34

$0.08

633

$9.58

Employer's Credit for Approved Retraining

3

$0.00

5

$0.00

11

$0.00

23

$0.01

1,975

$9.23

Historic Rehabilitation Credit

*

*

5

$0.02

10

$0.02

13

$0.12

89

$3.39

Qualified Education Expense Credit

*

*

6

$0.00

30

$0.02

68

$0.08

1,427

$3.15

Employer's Credit Provide/Sponsor Childcare

*

*

*

*

*

*

7

$0.00

371

$2.29

Research Tax Credit

*

*

*

*

*

*

11

$0.00

222

$2.22

Total Pass-Through Credits3

36

$0.61

44

$0.09

99

$0.36

266

$0.70

7,757

$256.72

Total Credits3

494,599

$17.49 498,272

$9.89 62,366

$15.45 72,426

$29.27 131,435 $503.49

1Analysis is based on state data and includes full-year returns only.

2Amount show n represents the average state credit for the given quintile, w hen a credit w as claimed.

3The total number of credits does not equal the total number of returns because returns may include multiple credits. Additional credits show n in Appendix F but not show n here are also

included in the total lines.

*Credits w ith few er than 3 returns in a given quintile w ere omitted, and minor edits w ere made as necessary to protect taxpayer confidentiality.

Source: DOR tax return records

Analysis of State Individual Income Taxes

37

The most frequently claimed state tax credit is the low income credit. The maximum amount of this credit is $26 each for the filer and any dependents, and the credit is not refundable. Approximately 66% of returns in the bottom quintile and 80% of returns in the second quintile that claimed the low income credit also claimed the federal earned income tax credit. The federal earned income tax credit is a refundable tax credit, meaning that it can reduce a filer's Tax Liability below zero, and the amount of the negative Tax Liability is paid to the filer.

Exhibit 35 shows the requirements to claim the federal earned income tax credit on a federal tax return, which relate to filing status, number of qualifying children, and earned income and federal AGI limits. In addition, the filer cannot have investment income greater than $3,300 (in tax year 2013) and cannot have a filing status of Married Filing Separately.

Exhibit 35 Federal Earned Income Credit Requirements and Amounts Tax Year 2013

Single, Head of Household, and Qualifying Widow(er):

If number of qualified Then earned income and And maximum amount

children is:

FAGI must be less than:

of credit allowed is:

Zero

$14,340

$487

One

$37,870

$3,250

Two

$43,038

$5,372

Three or more Married Filing Jointly:

$46,227

$6,044

If number of qualified Then earned income and And maximum amount

children is:

FAGI must be less than:

of credit allowed is:

Zero

$19,680

$487

One

$43,210

$3,250

Two

$48,378

$5,372

Three or more

$51,567

$6,044

Source: 2013 IRS tax guide for individuals

For tax year 2013, Georgia residents who claimed the federal earned income tax credit had an average federal AGI of approximately $18,000 and claimed one to two dependents. The average state Tax Liability for these filers was $283. As shown in Exhibit 36, the returns claiming the federal earned income tax credit were primarily in the lower three quintiles, which have federal AGI up to $42,000. Average state Tax Liability ranged from $25 for the bottom quintile to $1,100 for the fourth quintile.

Analysis of State Individual Income Taxes

38

Exhibit 36 Federal Earned Income Tax Credit by Income1
Tax Year 2013

500,000 450,000

Federal Earned Income Credit Georgia Low Income Credit

400,000

350,000

Number of Returns

300,000

250,000

200,000

150,000

100,000

50,000

0

Approximate FAGI Range2

$12,000 and Below

$12,000 to $24,000

$24,000 to $42,000

$42,000 to $52,000

Total Amount Average Total Amount Average Total Amount Average Total Amount Average

(millions)

Amount

(millions) Amount (millions) Amount (millions) Amount

Dependents

0.80

1.65

1.89

2.69

Federal AGI

$1,913.99 $6,672.59

$5,970.88 $16,963.22

$7,554.31 $31,142.93

$947.54 $45,504.33

Georgia Tax Liability

$7.04

$24.54

$59.33 $168.56

$166.65 $687.02

$22.68 $1,089.17

Federal Earned Income Credit

$512.31 $1,786.02

$1,366.20 $3,881.36

$551.10 $2,271.93

$14.71 $706.62

Georgia Low Income Credit

$7.33

$28.16

$4.11

$15.96

N/A

N/A

N/A

N/A

1Analysis includes the 3,253,616 full-year resident returns for w hich federal 1040, 1040A, or 1040EZ return data w as available, except for 7,550 returns w here federal AGI reported on the state return did not equal federal AGI reported on the federal return. 2The income ranges are based on the quintiles used throughout this report. Due to income limitations, returns w ith federal AGI greater than $52,000 did not qualify for the federal earned income credit. Also, returns w ith federal AGI greater than $20,000 did not qualify for the Georgia low income credit.

Source: DOR tax return records

Analysis of State Individual Income Taxes

39

Chapter 7: Filers With No Tax Liability
This chapter discusses the primary reasons we identified that filers had no Tax Liability. In 2013, approximately 936,000 full-year returns (24%) reported no Tax Liability. As shown in Exhibit 37, these filers were present in all quintiles.

Exhibit 37 Filers with No Tax Liability by Quintile1
Tax Year 2013

Number of Returns

800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000
0 Quintile
Approximate FAGI range

67%
Bottom $12,000 and
Below

22%
Second $12,000 to
$24,000

13%
Middle
$24,000 to $42,000

13%
Fourth
$42,000 to $80,000

7% Top Above $80,000

Filers with No Tax Liability

Filers with Tax Liability

1Analysis is based on state data and includes full-year returns only.

Source: DOR tax return records

Low-Income Filers Approximately two-thirds of returns in the bottom
quintile had no Tax Liability. These filers reported an average federal AGI of negative $5,500, which was further reduced, by an average of approximately $11,000, through a combination of adjustments, deductions, and exemptions. Low-income filers may also claim the low income credit, which has a maximum value of $26 each per filer and dependent.
Self-Employed Filers Self-employed filers may have no Tax Liability for a
number of reasons. Approximately one-third of returns with no Tax Liability reported having business income, and these returns account for a significant portion of income in the bottom and top quintiles. Due to business losses, selfemployed filers may begin their tax return with negative Total Income. Adjustments and credits targeted at businesses also reduce Tax Liability. For no Tax Liability filers, 66% of federal adjustments claimed were related to selfemployment or business expenses. For example, the federal adjustment for the self-employment plan had an average value of $9,750 on no Tax Liability returns. Business owners may also claim pass-through credits such as the employer's jobs tax credit, which had an average claimed value of $33,000 on no Tax Liability returns.
Filers Age 65 or Older Approximately 240,000 returns with a filer age 65 or older had no Tax Liability, which equaled 75% of all returns with a filer age 65 or older. These returns were found in each quintile, with one-third in the

Analysis of State Individual Income Taxes

40

bottom quintile. These returns had an average federal AGI of $27,500. Among no Tax Liability filers, retirement income comprised 37% to 58% of Total Income, and 89% of all state subtractions were for the retirement income exclusion or Social Security benefits. As discussed on page 27, each quintile claimed both subtractions. These two state adjustments reduced Taxable Income by $14.8 billion for no Tax Liability returns.
Head of Household The Head of Household filing status9 represented 17% of all returns with no Tax Liability, and most of these returns (65%) were in the bottom quintile. Filers in this group had an average federal AGI of $6,175, an average Georgia AGI of $5,932, and an average Taxable Income of negative $4,321. The decrease in income of more than $10,000 from Georgia AGI to Taxable Income was primarily due to a combination of personal and dependent exemptions. This filing status had the largest number of dependents compared to other filing statuses, and filers are allowed an exemption of $3,000 per dependent.
High-Income Filers Six percent of filers with no Tax Liability were in the
top quintile. While these filers had an average federal AGI of $150,700, they claimed various adjustments, deductions, and exemptions that resulted in an average Taxable Income of $16,400. To decrease their Tax Liability, filers may also claim tax credits, which have a dollar-for-dollar tax reduction. The most commonly used credit was the film tax credit, which is transferable. Because unused film tax credits may be sold or transferred to any other Georgia taxpayer, a filer can purchase this credit from the business that qualifies for it, paying the business an amount lower than the full value of the credit. Within the top quintile, this credit averaged $61,000 per use and accounted for half of the total tax credit amount claimed by no Tax Liability returns.

9 The Head of Household filing status also includes Qualifying Widow(er).

Analysis of State Individual Income Taxes

41

Chapter 8: Tax Expenditures
A tax expenditure is revenue a government foregoes through the provisions of tax laws (such as deductions or credits). Tax expenditures are intended to promote goals of the government without incurring direct expenditures.10 These tax expenditures, in the form of adjustments, deductions, and exemptions, can be calculated by taking the resulting reduction in Taxable Income and multiplying it by the filer's effective tax rate. Because credits reduce Tax Liability on a dollar-for-dollar basis, the tax expenditure is equal to the total amount of credits claimed.

As shown in Exhibit 38, deductions were the largest category of tax expenditures ($1.4 billion) for tax year 2013. Amounts for personal and dependent exemptions were the second largest category at $882 million.

Exhibit 38 Tax Expenditure Summary1 Tax Year 2013

Expenditure Type

Estimated Amount (millions)

Adjustments

Federal Adjustments

$294

State Adjustments

$414

Total Adjustments

$708

Personal and Dependent Exemptions

Personal Exemptions

$566

Dependent Exemptions

$316

Total Personal and Dependent Exemptions

$882

Deductions

Standard Deduction2

$178

Itemized Deductions3

$1,211

Total Deductions

$1,389

Credits

Individual Credits

$301

Pass-Through Credits

$258

Total Credits

$559

1Analysis is based on state data and includes full-year returns with the

exception of federal adjustments. The analysis of federal adjustments includes

the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ

return data was available.

2Includes additional standard deduction amounts for filers age 65 or older

and/or blind.

3Includes state adjustments to federal itemized deductions.

Source: DOR tax return records

10 The estimated tax expenditure amount represents the value of a tax provision claimed on tax returns but does not necessarily represent the revenue that would be gained by repealing the provision.

Analysis of State Individual Income Taxes

42

Exhibit 39 shows the top 20 tax expenditures for tax year 2013. The personal exemption deduction was the largest tax expenditure ($566 million), followed by two itemized deductions.

Exhibit 39 Top 20 Tax Expenditures1 Tax Year 2013
Tax Expenditure

Type

Estimated Amount (millions)

Personal Exemption

Exemption

$566

Taxes Paid

Itemized Deduction

$468

Interest Paid

Itemized Deduction

$353

Dependent Exemption

Exemption

$316

Retirement Income Exclusion2

State Adjustment (Subtraction)

$306

Gifts to Charity

Itemized Deduction

$243

Other State(s) Tax Credit

Credit (Individual)

$207

Individual Retirement Account Contributions

Federal Adjustment

$199

Georgia Standard Deduction

Deduction

$173

Film Tax Credit

Credit (Pass-Through)

$132

Social Security Benefits

State Adjustment (Subtraction)

$129

Job Expenses and Certain Miscellaneous Deductions Itemized Deduction

$114

Other Subtractions

State Adjustment (Subtraction)

$96

Low Income Housing Credit

Credit (Pass-Through)

$63

Medical and Dental Expenses

Itemized Deduction

$32

Child and Dependent Care Expense Credit

Credit (Individual)

$32

Land Conservation Credit

Credit (Pass-Through)

$31

Qualified Education Expense Credit

Credit (Individual)

$29

Self-Employed Health Insurance

Federal Adjustment

$21

Deductible Part of Self-Employment Tax

Federal Adjustment

$19

1Analysis is based on state data and includes full-year returns, with the exception of federal adjustments and itemized deductions. The analysis of federal adjustments and itemized deductions includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2The tax expenditure analysis excludes returns with zero or negative Taxable Income, which results in a conservative estimate. The effect is most apparent with our estimate for the retirement income exclusion, which was claimed on approximately 668,000 returns and reduced Taxable Income by an average of approximately $27,500 per return.

Source: DOR tax return records

Analysis of State Individual Income Taxes

43

Appendix A: Objectives, Scope, and Methodology
Objectives This report analyzes Georgia individual income taxes. Specifically, we examined the following:
1. Characteristics of filers and historic trends, including distributions on full-year resident returns;
2. Analytics on tax liabilities and effective tax rates derived from adjusted gross income and taxable income; and
3. Types of income and historical trends on categories of income, as well as state and federal adjustments, deductions, and credits.
Scope This special examination generally provided statistical information regarding the state's individual income tax for tax years 2009-2013, with consideration of earlier or later periods when relevant. Information used in this report was obtained by reviewing state Constitution and laws, reviewing federal rules and regulations, examining federal and state tax forms and instructions, and conducting interviews with both Georgia Department of Revenue (DOR) staff and Georgia State University Fiscal Research Center staff.
We utilized data from federal and state income tax returns for our analyses. As a result, the analyses do not include taxpayers who did not file an income tax return, and the analyses are not based on individual filers, in the case of returns with a Married Filing Jointly status. Due to the prevalence of full-year resident returns, we determined that our analyses would focus on full-year residents, who comprise over 90% of tax returns and Tax Liability. This determination led to the exclusion of approximately 398,000 part-year resident and nonresident returns (9%) of the 4.25 million returns in the full data set.
DOR provided federal and state tax return data for the most recent available tax year (2013). DOR indicated that it checks state tax return data for inconsistencies and that the state data used for this report includes changes from amended returns through August 2015. DOR also provided federal tax return data for approximately 85% of Georgia filers (3.25 million of the 3.85 million full-year resident returns). These filers were e-filers who included a copy of their federal return when filing Georgia tax returns. Due to federal regulations, we were unable to obtain federal tax data for returns filed by paper. Additionally, DOR indicated that it does not check for inconsistencies or make changes to the federal return data, so this data should be considered selfreported. The federal return data was used to conduct analyses on income type, federal adjustments, and federal itemized deductions. We compared returns that included federal data with those that did not and identified some differences. The average federal AGI for returns that included federal data was slightly (3%) lower than the average federal AGI for returns that did not include federal data. The percentage of returns claiming the standard deduction compared to itemized deductions was similar across the two groups.
We also obtained summary tax data from DOR for tax years 2009-2012. We used this data to provide historical trend information for selected tax statistics. When historical information is included, the amounts shown are the actual amounts reported and have not been adjusted for inflation.
The data utilized for this report is the best available data and was deemed sufficiently reliable for our analyses. We did identify some errors and problems with the data and took steps to address these issues whenever possible. However, we did not independently verify the data.

Analysis of State Individual Income Taxes

44

In order to characterize filers' income levels, we divided the population of full-year resident returns into five groupings, or quintiles. Each quintile is equal to approximately 770,000 returns, or 20% of the overall population. We placed each return into a quintile based on the federal AGI reported on the state tax return. The table below shows the approximate federal AGI range for each quintile.

Quintile Bottom Second Third Fourth
Top

Approximate FAGI Range $12,000 or Below $12,000 to $24,000 $24,000 to $42,000 $42,000 to $80,000 Above $80,000

Source: DOR tax return records

Methodology
To determine the characteristics of filers and historic trends, including distributions on fullyear resident returns, we utilized individual income tax return data provided by DOR. This data included state income tax return data for 2013, as well as summary tax data for the 2009-2012 tax years. To evaluate historic trends, we combined these data sets and analyzed the number of returns, federal AGI, Georgia AGI, Taxable Income, and Tax Liability for tax years 2009-2013. To evaluate filer characteristics, we analyzed residency status, filing status, and household size.
To provide analytics on tax liabilities and effective tax rates derived from adjusted gross income and taxable income, we utilized individual income tax return data provided by DOR. This data included state income tax return data for 2013, as well as summary tax data for the 2009-2012 tax years. To evaluate historic trends, we combined these data sets and analyzed statewide Tax Liability from 2009 to 2013. We analyzed the distribution of Tax Liability for 2013 by grouping Tax Liability into eight ranges selected by the audit team. We also compared the number of returns, aggregate federal AGI, and aggregate Tax Liability across income levels based on federal AGI increments of $25,000.
Effective tax rates were calculated by dividing Tax Liability by federal AGI and were compared by income quintile, filing status, and age. For all effective tax rate analysis, we excluded returns with zero or negative income, which would otherwise prevent the calculation of meaningful effective tax rates. Finally, we analyzed returns with no Tax Liability to identify the characteristics of and tax provisions utilized by this population.
To provide analysis on types of income and historical trends on categories of income, as well as state and federal adjustments, deductions, and credits, we utilized individual income tax return data provided by DOR, as discussed below. This data included income tax return data for 2013, as well as summary tax data for tax years 2009-2012. To evaluate historical trends, we combined these data sets and analyzed income measures from 2009 to 2013.
We analyzed income type using federal tax return data, breaking Total Income down into Business, Retirement, Wage, Investment, and Other categories. The audit team categorized income types based on the descriptions of each income source found in federal tax publications. Where noted, we excluded negative income from certain analyses to allow for the calculation of percentages.
We analyzed federal and state adjustments to income using federal and state tax return data, respectively. We analyzed the number of returns with adjustments, the average

Analysis of State Individual Income Taxes

45

adjustment, the total amount of adjustments, and the distribution of adjustments by income quintile. Adjustment amounts for these analyses reflect the amounts claimed on returns, which in some cases, may reduce Taxable Income below zero.
We analyzed deductions from income using federal and state tax return data, comparing standard versus itemized deductions and analyzing the number of returns, the average deduction, and total deductions for full-year residents. We also analyzed the distribution of itemized deductions by income quintile. Deduction amounts for these analyses reflect the amounts claimed on returns, which in some cases, may reduce Taxable Income below zero.
We analyzed credits using state tax return data. We used DOR tax publications to identify individual and pass-through credits. We calculated the number of returns where credits were claimed and the average and total amount of credits claimed. We also analyzed the distribution of credits by income quintile. Credit amounts for these analyses reflect the amounts claimed on returns, and in some cases, the total amount of credits claimed on a return may exceed the gross Tax Liability for that return. While Georgia does not have any refundable tax credits, some credits are eligible to be carried over to subsequent years. These credits are noted in Appendix F. For two credits, the other state(s) tax credit and the Georgia National Guard insurance credit, a small number of returns (6 and 105, respectively) claimed amounts that significantly exceeded what we determined to be reasonable, based on the returns' reported income and the parameters of the credits. For these returns, we reduced the amounts claimed to reasonable levels and adjusted our totals accordingly.
Finally, we analyzed tax expenditures for adjustments, deductions, exemptions, and credits. Tax expenditures for adjustments, deductions, and exemptions were calculated by taking the resulting reduction in Taxable Income and multiplying it by the filer's effective tax rate, which was calculated using Taxable Income. Regarding credits, tax expenditures are generally equal to the total dollar amount of credits claimed because credits reduce Tax Liability on a dollar-for-dollar basis. However, for this analysis, the audit team excluded all returns with zero or negative Taxable Income. Because returns with zero or negative Taxable Income were excluded, our tax expenditure estimates are conservative and may be lower than estimates by other entities. The effect is most apparent with our estimate for the retirement income exclusion, which was claimed on approximately 668,000 returns and reduced Taxable Income by an average of approximately $27,500 per return.
This special examination was not conducted in accordance with generally accepted government auditing standards (GAGAS) given the timeframe in which the report was needed. However, it was conducted in accordance with Performance Audit Division policies and procedures for nonGAGAS engagements. These policies and procedures require that we plan and perform the engagement to obtain sufficient, appropriate evidence to provide a reasonable basis for the information reported and that data limitations be identified for the reader.

Analysis of State Individual Income Taxes

46

Appendix B: Income Types1

Income Type2 Wage Income Wages, Salaries, Tips Retirement Income
Pensions and Annuities
Social Security Benefits3
Individual Retirement Account Distributions Business Income Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts Business Income or (Loss)

Description
Compensation received for services as an employee.
Taxable amounts of distributions received from employee pensions or annuities from qualified plans, disability retirement, or purchased commercial annuities. Taxable amounts of Social Security benefits and tier 1 or tier 2 railroad retirement benefits. Taxable amounts of distributions received from Individual Retirement Accounts.
Profits or losses from rental real estate, royalties, partnerships, S corporations, trusts, etc. Profits or losses from sole proprietorships.

Number of Returns 2,790,125
573,785
356,019 240,689
360,407 652,128

Average Amount

Total Amount (millions)

$50,219

$140,112

$22,938 $13,164 $16,640

$13,162 $4,687 $4,005

$30,653 $6,813

$11,048 $4,443

Farm Income or (Loss)

Profits or losses from farming.

38,672

-$9,503

-$368

Investment Income Capital Gains or (Losses)
Ordinary Dividends
Taxable Interest Other Income
Other Income
Taxable Refunds, Credits, or Offsets of State and Local Income Taxes Unemployment Compensation
Other Gains or (Losses)

Gains or losses from the sale or trade of a capital asset. Distributions of money, stock, or other property paid from corporations or by mutual funds.
Interest received from bank accounts, taxable bonds, and loans made.
Includes income such as canceled nonbusiness debt, rental of personal property, gambling winnings, and activity not for profit (i.e., hobbies). Refunds, credits, or offsets of state or local income tax if the tax was deducted in an earlier tax year.
Compensation received under U.S. or state unemployment compensation laws.
Includes gains or losses from the sale or trade of a non-capital asset, the disposition of property used in a trade, or losses on small business stock.

431,661 503,703 759,594

$14,618 $6,590 $1,687

198,131

-$16,777

795,291 164,250
42,834

$1,342 $4,191 -$8,477

$6,310 $3,320 $1,281
-$3,324 $1,067
$688 -$363

Alimony Received

Payments from a spouse or former spouse under a divorce or separation instrument.

8,214

$21,107

$173

Total Income

3,249,335

$57,318

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2Filers may have more than one income type. 3Social Security benefits are not taxable in Georgia, and filers can subtract them from their income using a state adjustment.

$186,245

Source: DOR Tax Return Records

Analysis of State Individual Income Taxes

47

Appendix C: Federal Adjustments1

Federal Adjustment Deductible Part of SelfEmployment Tax
Self-Employed Health Insurance

Description Self-employed individuals may deduct one-half of their self-employment tax paid.
Self-employed individuals may deduct amounts paid for medical or long-term care insurance on their behalf or on behalf of their spouse, dependents, and children.

Number of Returns2
435,680
74,686

Average Amount Claimed
$1,191

Total Claimed (millions)
$519

$6,572

$491

Self-Employed SEP, SIMPLE, and Qualified Plans
Student Loan Interest
Individual Retirement Account Contributions

Self-employed individuals may deduct contributions to qualified retirement plans. Individuals with federal AGI less than $75,000 may deduct up to $2,500 in interest on a loan for qualified education expenses.
Eligible individuals may deduct contributions to either a traditional or Roth Individual Retirement Account. The amounts contributed and deducted are subject to annual limits.

15,406 239,740

$22,709 $1,016

51,484

$4,464

$350 $244 $230

Alimony Paid

Eligible individuals may deduct payments to a spouse or former spouse under a divorce or separation instrument.

12,032 $17,523

$211

Domestic Production Activities3

Eligible individuals may deduct a percentage of net income attributable to domestic production.

9,510 $16,329

$155

Tuition and Fees

Enrolled students with federal AGI less than $65,000 may deduct up to $4,000 for qualified education expenses. Those with federal AGI less than $80,000 may deduct up to $2,000.

41,337

$2,640

$109

Eligible individuals may deduct their

Health Savings Accounts

contributions to Health Savings Accounts (does

25,278

$2,842

$72

not include employer contributions).

Moving Expenses

Eligible individuals may deduct expenses associated with moving to a new location for employment. The move must meet distance and time criteria.

18,370

$2,481

$46

Educator Expenses

Eligible educators may deduct up to $250 of

qualified expenses for classroom materials. If

the filer and spouse are filing jointly and both

106,350

$254

$27

are eligible educators, a maximum deduction of

$500 is allowed.

Certain Business Expenses of Reservists, Performing Artists, and Fee-Basis Government Officials

Eligible individuals may deduct travel and other business expenses as an adjustment to gross income rather than as an itemized deduction.

4,474

$3,884

$17

Eligible individuals may deduct penalties

Penalty on Early Withdrawal of imposed due to early withdrawal of funds from

Savings

a certificate of deposit or other deferred interest

14,423

$201

$3

account prior to maturity.

Total Federal Adjustments2

842,766

$2,935

$2,473

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available. 2The total numner of adjustments does not equal the total number of returns because returns may include multiple adjustments. 3Georgia does not allow the federal adjustment for domestic production activities, so these filers must use a state adjustment to reverse this item when calculating their Georgia AGI.

Source: DOR tax return records

Analysis of State Individual Income Taxes

48

Appendix D: State Adjustments1

State Adjustment Additions to Income
Interest on Non-Georgia Municipal and State Bonds

Description

Number of Returns2

Average Amount Claimed

Total Claimed (millions)

Interest received from non-Georgia municipal and state bonds, as well as dividends from mutual funds that derive income from nonGeorgia municipal and state bonds. O.C.G.A. 487-27 (b)(1)(A)

64,440

$6,321

$407

Federal Deduction for
Domestic Production Activities3

Federal deduction for income attributable to domestic production activities. O.C.G.A. 48-12(14)

10,942 $17,220

$188

Lump Sum Distributions Other Additions Total Additions2

Lump sum distributions from employee benefit plans. O.C.G.A. 48-7-27 (b)(1)(C)
Generally due to differences between federal and state tax law (e.g., differences in depreciation calculation). Also, the addition of income related to charitable contributions for which a state credit (e.g., qualified education expense credit) was claimed. O.C.G.A. 48-7-27

397 $17,344

$7

140,133 $37,447 193,491 $30,235

$5,248 $5,850

Subtractions from Income

Retirement Income Exclusion

Exclusion of up to $35,000 for filers age 62 to 64 years of age or for filers under 62 and permanently disabled. For filers age 65 or older, the maximum exclusion is $65,000. For married filers, each may claim the exclusion if eligible. Exclusions may include a maximum of $4,000 in earned income. O.C.G.A. 48-7-27 (a)(5)

668,181 $27,479

$18,361

Social Security Benefits

Social Security benefits or railroad retirement paid by the Railroad Retirement Board that is included in federal AGI. O.C.G.A. 48-7-27 (a)(7)

434,152 $13,325

$5,785

Interest on U.S. Obligations

Interest and dividends on U.S. government bonds and other U.S. obligations to the extent included in federal AGI for federal income tax purposes but exempt from state income taxes under federal law. O.C.G.A. 48-7-21 (b)(1)(B)

43,604

$2,093

$91

Deductible portion of contributions to the Georgia

Georgia Education Savings Higher Education Savings Plan. Adjustment is Plan (Path2College 529 Plan) limited to the lesser of the amount contributed or

32,604

$2,724

$89

$2,000. O.C.G.A. 48-7-27 (a)(11.1)

Other Subtractions Total Subtractions2

Generally due to differences between federal and state tax laws. O.C.G.A 48-7-27

212,560 881,933

$28,330 $34,411

$6,022 $30,348

Net State Adjustments2

930,239 -$26,335

-$24,498

1Analysis is based on state data and includes full-year returns only. 2The total number of adjustments does not equal the total number of returns because returns may include multiple adjustments. 3Georgia does not allow the federal adjustment for domestic production activities, so a state adjustment is used to reverse this item when calculating Georgia AGI. The total here does not match Appendix C on page 47 because Appendix C only includes those residents for which federal 1040, 1040A, or 1040EZ return data was available.

Source: DOR tax return records

Analysis of State Individual Income Taxes

49

Appendix E: Itemized Deductions1

Deduction

Description

Medical and Dental Expenses

Total of medical and dental expenses Medical and Dental Expenses net any reimbursement from insurance
or other sources.

Taxes Paid

Number of Returns2
263,417

State and Local Taxes Real Estate Taxes Personal Property Taxes Other Taxes Paid

State and local income or general sales taxes paid.
Taxes paid on real estate owned that was not used for business.
State and local personal property taxes paid, based on value paid per year.
Any deductible taxes not already listed, such as foreign income taxes.

1,159,776 990,241 793,804 202,993

Interest Paid
Home Mortgage Interest and Points on Form 1098 Home Mortgage Interest Not on Form 1098 Home Mortgage Points Not on Form 1098
Mortgage Insurance Premiums
Investment Interest
Gifts To Charity

Home mortgage interest and points paid to a lender and reported by the lender on form 1098.
Home mortgage insurance interest not reported by the lender on form 1098.
Home mortgage points paid that were shown on a settlement statement.
Qualified mortgage insurance premiums paid under insurance contracts issued after 2006. Interest paid on money borrowed allocable to property held for investment.

902,232 25,127 77,569
184,412 35,523

Gifts by Cash or Check
Gifts Other than by Cash or Check
Carryover from Prior Year

Cash or check contributions for gifts to religious, charitable, educational, scientific, literary, and child and animal abuse purposes.
Contributions for gifts to religious, charitable, educational, scientific, literary, and child and animal abuse purposes that are not via cash or check.
Carryover of contributions that were not deductible in previous years because they exceeded taxpayer federal AGI limits.

916,989 666,105
21,593

(continued on next page)

Average Amount Claimed

Total Claimed (millions)

$8,212

$2,163

$5,686 $2,723
$519 $571

$6,594 $2,697
$412 $116

$7,962 $4,747
$484 $1,140 $6,510

$7,184 $119 $38 $210 $231

$4,690

$4,300

$2,810

$1,872

$39,916

$862

Analysis of State Individual Income Taxes

50

Appendix E: Itemized Deductions

(Continued)

Deduction Casualty or Theft Loss(es)

Description

Number of Returns

Average Amount Claimed

Total Claimed (millions)

Loss caused by theft, vandalism, fire,

storm, car accidents, boat accidents,

Casualty or Theft Loss(es)

other vehicle accidents, and corrosive drywall damages. Also, money

2,759

$14,866

$41

invested in financial institutions that

were insolvent or claimed bankruptcy.

Job Expenses and Certain Miscellaneous Deductions

Unreimbursed Employee Expenses

The total amount of "ordinary and necessary" job expenses not reimbursed by the employer. Ordinary is defined as "common and accepted in your field of trade, business, or profession."

443,126

$6,320

$2,801

Tax Preparation Fees

Fees paid for preparation of tax returns, including fees for filing tax forms electronically.

634,778

$324

$206

Other Expenses (Investment Related)

Amount paid to produce or collect Taxable Income and manage or protect property held for earning income. Examples include certain legal and accounting fees, clerical help, and office rent.

Other Miscellaneous Deductions

190,059

$4,356

$828

Other Miscellaneous Expenses

Examples include gambling losses, casualty and theft losses of incomeproducing property, amortizable bond premiums, unrecovered pension investment, and impairment-related work expenses of disabled persons.

19,255

$10,561

$203

Total Itemized Deductions2

1,174,406

$24,040

$28,232

1Analysis includes the 3,253,616 full-year residents for which federal 1040, 1040A, or 1040EZ return data was available.
2The total number of deductions does not equal the total number of returns because returns may include multiple deductions. The total amount claimed is less than the sum of individual lines because certain deductions are limited for high-income filers, but the data was not sufficient to determine the extent to which the individual lines were affected.

Source: DOR tax return records

Analysis of State Individual Income Taxes

51

Appendix F: State Tax Credits1

Credit Individual Credits
Other State(s) Tax Credit
Child and Dependent Care Expense Credit
Qualified Education Expense Credit
Low Income Credit
Low/Zero Emission Vehicle Credit3
Adoption of a Foster Child Credit
Eligible Single Family Residence Tax Credit

Description

Number of Returns2

Provided to residents who have an established business, have investment in property with a taxable situs, or are employed in another state with that income being taxed by another state. The maximum value of the credit is equal to the amount that would be due if the applicable income was taxed by Georgia. O.C.G.A. 48-728
Provided to taxpayers for qualified child and dependent care expenses. The credit is linked to a federal tax credit and equal to 30% of the federal credit claimed. O.C.G.A. 48-7-29.10
Provided to taxpayers who made donations to a student scholarship organization for the purposes of tuition and fees for a qualified school/program. The maximum value of this credit for individuals is $1,000 per year for Single or Head of Household filers and $2,500 per year for those Married Filing Jointly. O.C.G.A. 48-7-29.16
Provided to low-income taxpayers with a federal AGI of no more than $20,000. The credit has a maximum value of $26 each for the filer and any dependents. O.C.G.A. 48-7A-3
Provided to taxpayers who purchased or leased a new low- or zero- emission vehicle registered in the state. The credit can also be claimed by taxpayers who converted a conventionally fueled vehicle to an alternatively fueled or zero emission vehicle. O.C.G.A. 48-7-40.16
Provided to taxpayers for the adoption of a foster child who is under the age of 18 and in the foster care system under the Division of Family and Children Services of the Department of Human Services. The maximum value of the credit is $2,000 per child adopted. O.C.G.A. 487-29.15
Provided to taxpayers for the purchase of an eligible single-family residence between June 1, 2009, and November 30, 2009. Qualifying residences include foreclosures, loan defaults, and houses. The maximum value of the credit is $1,800. Any unused credit can be carried forward. O.C.G.A 48-7-29.17
(continued on next page)

69,640 198,898
14,253 979,031
3,651 1,457 2,941

Average Amount Claimed
$3,005
$161 $2,009
$22 $4,660
$3,354
$339

Total Amount Claimed $209,287,531
$32,018,703 $28,633,574
$21,275, $17,014,814
$4,887,167
$996,481

Analysis of State Individual Income Taxes

52

Appendix F: State Tax Credits (Continued)

Credit

Description

Average Number of Amount
Returns Claimed

Total Amount Claimed

Rural Physicians Credit

Provided to physicians that operate in a facility with 100 beds or fewer in a county with 65 or fewer people per square mile. The maximum value of the credit is $5,000. O.C.G.A. 48-7-29.

162

$5,000

$810,000

Georgia National Guard Insurance Credit
Clean Energy Property Credit

Provided to active Georgia National Guard and Air National Guard members for premiums paid for qualified life insurance programs. The maximum value of the credit is equal to the amount expended for qualified life insurance premiums. O.C.G.A. 48-7-29.9
Provided to taxpayers for the construction, purchase, or lease of clean energy property placed into service in Georgia between July 1, 2008, and December 31, 2014. The credit is applied in four equal installments over a period of four years. The maximum aggregate value of the credit is $5 million and is awarded on a first come, first served basis. O.C.G.A. 48-7-29.14

Disabled Person Home Purchase or Retrofit Credit

Provided to taxpayers for the purchase of a new, single-family residence containing specific accessibility features or the retrofitting of an existing single-family residence with one or more of these features. The maximum value of the credit is $500. O.C.G.A. 48-7-29.1

Qualified Caregiving Expense Credit

Provided to taxpayers for home health agency services, personal care services, homemaker services, adult day care, respite care, or other health supply/equipment purchases provided to a family member who is either over 62 or has been determined to be disabled by the Social Security Administration. The maximum value of the credit is $150. O.C.G.A. 48-7-29.2

Driver Education Credit

Provided to taxpayers for expenses related to enrolling a dependent minor in a private driver training school with a company approved by the Department of Driver Services. The maximum value of the credit is $150. O.C.G.A. 48-7-29.5

Disaster Assistance Credit

Provided to taxpayers who have received disaster assistance from either the Federal Emergency Management Agency or the Georgia Emergency Management Agency within the tax year. The maximum value of the credit is $500. O.C.G.A 48-7-29.4

Total Individual Credits2

(continued on next page)

1970 137
1,346 3,251 1,101
104 1,253,902

$390

$769,044

$3,301

$452,183

$326

$438,182

$106

$343,031

$133

$146,321

$383

$39,800

$253 $317,112,488

Analysis of State Individual Income Taxes

53

Appendix F: State Tax Credits (Continued)

Credit

Description

Pass-Through Credits

Film Tax Credit4

Provided to production companies with at least $500,000 of qualified expenditures in state-certified production of movies, television, and music videos. The allowable tax credit is equal to 20% of the base investment in this state, and an additional tax credit equal to 10% of the base investment can be claimed if the qualified production activity includes a qualified Georgia promotion. Certification must be approved by the Georgia Department of Economic Development. O.C.G.A. 48-7-40.26

Low Income Housing Credit
Land Conservation Credit4

Provided to taxpayers who own, either directly or indirectly, developments that receive the federal low income housing tax credit and have been placed in service on or after January 1, 2001. O.C.G.A. 48-729.6 Provided to taxpayers who made a qualified donation of real property as conservation land. The credit cannot be claimed for property donated to increase building density levels. O.C.G.A. 48-729.12

Employer's Jobs Tax Credit

Provided to businesses engaged in manufacturing, warehousing, distribution, processing, telecommunications, broadcasting, tourism, or research and development industries for jobs created. The amount of the credit varies based on the number of jobs and the county where the jobs are located. O.C.G.A. 48-7-40

Employer's Credit for Approved Employee Retraining

Provided to employers in the state who provide or sponsor at least one approved retraining program in a year. The amount of the credit allowed for each full-time employee is equal to the lesser of one-half the cost of retraining or $500. O.C.G.A. 48-7-40.5

Historic Rehabilitation Credit

Provided to taxpayers for the rehabilitation of a historic structure or home. The Department of Natural Resources must certify that the rehabilitation has met its standards. The maximum value of the credit for historic structures is 25% of the qualified rehabilitation expenditures, up to $300,000. The maximum value of the credit for historic homes is 25% of the qualified rehabilitation expenditures, with an additional 5% for homes in target areas, up to $100,000. O.C.G.A. 48-7-29.8

Qualified Education Expense Credit

Provided to taxpayers who made donations to a student scholarship organization for the purposes of tuition and fees for a qualified school/program The maximum value of the credit is $10,000 for partners, S corporations, and members of a limited liability company. The maximum value of the credit for a corporation or other entity should not exceed the actual amount expended or 75% of income Tax Liability for corporations. O.C.G.A. 48-7-29.16

(continued on next page)

Number of Returns 2,345 935 888 700 2,017
117
1,531

Average Amount Claimed
$56,249
$66,788 $34,317 $14,118
$4,584
$30,379
$2,127

Total Amount Claimed $131,904,644
$62,446,396 $30,473,624
$9,882,543 $9,246,380
$3,554,374
$3,255,785

Analysis of State Individual Income Taxes

54

Appendix F: State Tax Credits (Continued)

Credit Employer's Credit for Providing/Sponsoring Childcare
Research Tax Credit
Manufacturer's Investment Tax Credit
Bank Tax Credit
Employer's Credit for Purchasing Child Care Property
Optional Investment Tax Credit
Qualified Health Insurance Expense Credit

Description
Provided to employers who provide or sponsor child care for employees. The credit is 75% of the amount expended but may not exceed 50% of the taxpayer's total state income Tax Liability for that year. Any unused credit can be carried forward for up to five years. O.C.G.A. 48-7-40.6
Provided to taxpayers for expenses for research conducted within Georgia for any business engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, broadcasting, or research and development. The maximum value of the credit is 50% of Georgia Tax Liability after all other credits have been applied. Any unused credits may be carried forward 10 years. O.C.G.A. 48-7-40.12
Provided to taxpayers who have operated an existing manufacturing or telecommunications facility in the state for the previous three years. Companies must invest at least $50,000 per project/location during the tax year to claim the credit. O.C.G.A. 48-7-40.2, 48-740.3, 48-7-40.4
Provided to depository financial institutions that have paid special state occupation taxes or local business license taxes. The credit is equal to the amount of tax paid by the institution. Any unused credits may be carried forward for up to five years. O.C.G.A. 48-729.7, 48-6-93, 48-6-95
Provided to employers who purchase qualified child care property. The credit is equal to 100% of the cost of the property and is claimed at a rate of 10% per year for 10 years. Any unused credit can be carried forward for three years and cannot exceed 50% of the Tax Liability for those years. A portion of the credit may be recaptured if the property is transferred or no longer used for childcare within 14 years of being placed in service. O.C.G.A. 48-7-40.6
Provided to taxpayers who qualify for the manufacturer's investment tax credit who have qualified investment property with an aggregate cost in excess of $5 million. Taxpayers may choose an optional tax credit with different location tier, minimum investment, and tax credit parameters. The optional tax credit is calculated based on a three-year Tax Liability average and must be pre-approved before filing. O.C.G.A. 48-7-40.7, 48-7-40.8, 48-740.9
Provided to employers with 50 or fewer employees for qualified health insurance expenses in the amount of $250 for each employee enrolled for 12 consecutive months in a qualified health insurance plan. O.C.G.A. 48-7-29.13
(continued on next page)

Number of Returns 381 239 150 512
114
15 337

Average Amount Claimed
$6,017
$9,332
$4,827 $1,156
$4,763
$18,793
$786

Total Amount Claimed $2,292,313
$2,230,270
$724,109 $591,649
$542,937
$281,901
$264,988

Analysis of State Individual Income Taxes

55

Appendix F: State Tax Credits (Continued)

Credit
Film Tax Credit Qualified Interactive Entertainment Production Company4
Clean Energy Property Credit
Zero Emission Vehicle Credit2
Seed-Capital Fund Credit
Qualified Investor Tax Credit

Description
Provided to qualified interactive entertainment production companies (QIEPC) and their QIEPC affiliates. QIEPCs are those with a gross income of less than $100 million, with 50% of their income and expenses attributable to qualified production activities. The maximum value of the credit for any QIEPC was $5 million in 2013. The aggregate maximum value of the credit is $25 million, and credits are awarded on a first-come, first-served basis based on the dates the credits are claimed. O.C.G.A. 48-7-40.26
Provided to taxpayers for the construction, purchase, or lease of clean energy property that is placed into service in Georgia between July 1, 2008, and December 31, 2014. The credit is applied in four equal installments over a period of four years. The maximum aggregate value of the credit is $5 million and is awarded on a first come, first served basis. O.C.G.A. 48-7-29.14
Provided to taxpayers who purchased or leased a new zero-emission vehicle registered in the state. The credit can also be claimed by taxpayers who converted a conventionally fueled vehicle to an alternatively fueled or zero emission vehicle. O.C.G.A. 48-7-40.16
Provided to taxpayers who invest in funds that provide early-stage financing for businesses formed as a result of the intellectual property from the research conducted in the research universities in Georgia. The credit is equal to 25% of the taxpayer's investment. Any unused credit may be carried forward and applied to Tax Liability for 10 years. O.C.G.A. 48-7-40.27
Provided to taxpayers for investment in businesses less than three years old with headquarters in Georgia that employed 20 or fewer individuals at the time of business registration and primarily engaged in manufacturing, processing, online and digital warehousing, online and digital wholesaling, software development, information technology services, research and development, or certain other services. The credit is equal to 35% of the amount invested. The maximum value of the credit is $50,000. O.C.G.A. 48-7-40.30
(continued on next page)

Average Number of Amount
Returns Claimed 8 $26,737
35 $4,610 34 $4,244 16 $8,193
10 $5,411

Total Amount Claimed $213,896
$161,356 $144,295 $131,086
$54,105

Analysis of State Individual Income Taxes

56

Appendix F: State Tax Credits (Continued)

Credit

Description

Number of Returns

Average Amount Claimed

Total Amount Claimed

Employer's Credit for Basic Skills Education

Provided to employers that provide or sponsor classes for employees to receive a GED certificate or basic skills education classes that enhance reading, writing, or mathematical skills up to and including the 12th grade. The maximum value of the credit is $150 per fulltime equivalent student. O.C.G.A. 48-7-41

40

$1,017

$40,680

Port Activity Tax Credit

Provided to businesses that have increased their port traffic of products by more than 10% of their 1997 port traffic amounts within the past year. The credit is an additional $1,250 per job that qualifies for the Employer's Job Tax Credit or the amount allowed for the Manufacturer's Investment Tax Credit on qualifying property. O.C.G.A 48-7-40.15

3

$6,416

$19,248

Business Enterprise Vehicle Credit

Provided to businesses for the purchase of a motor vehicle used exclusively to provide transportation to employees. Each vehicle must carry an average daily ridership of no less than four employees for the entire tax year. The credit cannot be claimed if the low and zero emission vehicle credit was claimed. Any unused credit can be carried forward. O.C.G.A. 48-7-40.22

4

$1,492

$5,969

Qualified Transportation Credit
Electric Vehicle Charger Credit

Provided to employers for any qualified transportation fringe benefit provided to an employee. Benefits must be directly related to transit passes or transportation via commuter highway vehicle. The credit is $25 per employee receiving the benefit. O.C.G.A 48-729.3 Provided to businesses for the purchase of an electric vehicle charger located in the state. The maximum value of the credit is $2,500. O.C.G.A. 48-7-40.16

34

$171

$5,811

4

$736

$2,945

Other Credits5

Includes the New Facilities Jobs Credit, New Facilities Property Credit, Headquarters Tax Credit, and Quality Jobs Tax Credit. Credits with fewer than 3 claims have been grouped into "Other Credits" for taxpayer confidentiality.

4

$1,192

$4,767

Total Pass-Through Credits2

8,202

$31,514 $258,476,071

Total Credits2

1,259,098

$457 $575,588,559

1Analysis is based on state data and includes full-year returns only
2The total number of credits does not equal the total number of returns because returns may include multiple credits. 3The low/zero emission vehicle credit has been eliminated, effective July 1, 2015. 4Credit is transferrable to other taxpayers. 5Low Emission Vehicle (pass-through), Alternative Port Activity, Wood Residual, and Diesel Particulate Emission Reduction Technology
credits are not listed because no full-year returns claimed these credits.

Source: DOR tax return records

Analysis of State Individual Income Taxes

57

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