In addition to a moderate climate and year-round warm weather, the state of Georgia offers tax breaks for seniors, including generous exclusions on retirement income. Although Georgia maintains a state income tax, you may be able to exclude a large portion of your pension if you meet certain requirements set by the state.
Georgia Pension Exclusion
When calculating Georgia income taxes, both Georgia pensions and out-of-state pensions count as sources of income, which means these funds are subject to taxation. Fortunately, Georgia offers a large retirement exclusion, which allows you to deduct a portion of your retirement income from your taxable income to help lower your tax burden. As of 2012, you can deduct up to $35,000 of retirement income if you are between the ages of 62 and 64 or permanently disabled. Once you reach the age of 65, you can deduct up to $65,000. If you are married, both you and your spouse can qualify for this deduction, but you must qualify separately based on age or disability.
Georgia Income Taxes
If you earn more than the retirement exclusion amount based on your age or disability level, any additional income is subject to Georgia state income taxes. As of 2013, the state charges 1 percent on the first $1,000 of taxable income for married couples, or the first $750 for single filers. The rate increases for 2 percent for income exceeding $1,000 but less than $3,000 for married couples, and income exceeding $750 but less than $2,250 for singles. Married couples with taxable income between $3,000 and $5,000 pay 3 percent, while singles who earn between $2,250 and $3,750 pay 3 percent. The tax rate rises to 4 percent for married couples earning between $5,000 and $7,000 or singles earning $3,750 and $5,250. Married couples earning between $7,000 and $10,000 pay 5 percent, while any income over $10,000 is taxed at 6 percent. Single filers earning $5,250 to $7,000 pay 5 percent, and the rate rises to 6 percent for taxable income over $7,000.
Federal Pension Taxes
In addition to any income tax you pay in Georgia, you may be required to pay federal taxes on your pension. The Internal Revenue Service fully taxes pensions where the recipient is non-invested. This means you have to count the pension as income and pay federal taxes if you did not contribute to the pension, or if you contributed pretax dollars. If you contributed after-tax dollars, the portion of the pension that represents a return of after-tax dollars is not taxable, while the rest of your pension is subject to federal taxes, according to the IRS.
As of the 2016 tax year, all pensions and other retirement income will be exempt from Georgia income taxes, advises Sam Bromberg in the "Atlanta Business Chronicle." In 2010, Georgia Governor Sonny Purdue signed HB 1055 into law, which phases out Georgia's income tax on pensions and other retirement income by 2016. The retirement exclusion for Georgia taxpayers over the age of 65 increases to $100,000 in 2013, $150,000 in 2014 and $100,000 per person by 2015.
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