The federal tax overhaul that went into law in 2017 has exposed many taxpayers in Georgia and around the country to unexpected income tax bills. According to the Government Accounting Office, roughly 3 million more people than last year will have failed to withhold sufficient income taxes from their paychecks to avoid owing when they file their 2018 federal tax returns. One tax accountant explained that entitlements to withholding allowances that people had grown to expect were reduced. This translated into people not having enough money taken out of their paychecks. The loss of some itemized deductions have also produced higher tax liabilities.
While the tax law has changed in recent years, there are still many deductions that Georgia residents may be entitled to in addition to the standard deduction. For example, it may be possible to take a deduction for student loan interest up to $2,500. This is true for single filers who have a modified adjusted gross income of $80,000 or less. The amount increases to $165,000 for married couples filing jointly.
Georgia residents may have heard that the new Form 1040 is going to be shorter than previous versions. This was one of the benefits touted by those who supported the Tax Cuts and Jobs Act (TCJA). However, taxpayers should be aware that there are six schedules that could need to be attached to the new form. Individuals who owe self-employment taxes or tax deductions or who need to pay the alternative minimum tax (AMT) will have to go through this process.
At some point, Georgia retirees must start taking distributions from their retirement savings accounts. The IRS mandates that individuals must start taking these distributions starting in April of the year after turning age 70 1/2. Furthermore, they must calculate and abide by their required minimum distribution. This amount is based on how long a person is expected to live as well as their account balance at the end of the previous year.
Obtaining head of household status can be a boon for divorced parents who meet the criteria for it. Among the benefits is a standard deduction of $18,000 as opposed to $12,200 for those who file single. Furthermore, individuals who have the head of household status can claim a $2,000 child tax credit. Unlike a deduction that reduces a person's taxable income, a credit actually reduces what a person owes by the amount of the credit.
Taxpayers throughout Georgia and the rest of the country now know what the tax brackets will be for the 2019 tax year. Individuals who make up to $9,700 will be in the 10 percent tax bracket, which is the lowest of the seven income tax tiers. Individuals who have a taxable income of $510,301 or more will pay at the highest 37 percent rate. Those who are married filing jointly will be in the 37 percent bracket if they make $612,351 and up.
In 2019, individuals saving for retirement in Georgia and throughout the country will be able to contribute more to their accounts. The IRS announced that the maximum annual contribution to an IRA will increase to $6,000 from $5,500. Those who have a 401k or similar plan will be able to contribute up to $19,000 annually starting in 2019. A person who is 50 and older will be able to make additional catch-up contributions of $1,000 into an IRA and $6,000 into a 401k.
Georgia residents who perform services for the government during an election must pay taxes on the income they earned. However, this income will not be subject to income tax withholding unless a worker specifically asks for that to occur. This is done by submitting a W-4 form to the agency employing the election worker.
Georgia residents and others who win a lottery game such as Mega Millions will need to pay taxes on their winnings. Both the IRS and state tax authorities will be looking to collect a portion of any amount received. Those who receive a cash prize will have 24 percent of it withheld to cover federal taxes. Additional taxes may apply depending on the amount of the award and the tax bracket it puts a person in.
Taxpayers in Georgia and throughout the country could owe the IRS money in April 2019 according to the Government Accountability Office, which says that up to 30 million people have not had enough money withheld for taxes by their employers. This is because of changes to the tax code implemented in 2017. Conversely, simulations run by the GAO show that many other taxpayers have had too much withheld and will receive a refund.