Tuesday, May 22, 2018

Georgia HEART Hospital Program

In the past, we have written about the Georgia Qualified Education Expense Tax Credit (Georgia GOAL) and its potential benefits to you as a Georgia taxpayer. We are still advocates of the credit and believe that, despite its reduced allocation to taxpayers due to its popularity, many of our clients will continue to benefit from it. Today, we want to make you aware of the Georgia HEART tax credit. This may be the first time you are learning about this credit, but just like Georgia GOAL, we expect this credit to become very popular very fast due to the enhanced legislation that was just passed to become effective July 1, 2018.

First, a quick note for our clients who are fortunate enough to not incur Georgia income taxes due to the retirement exclusion, living elsewhere, or otherwise: this is a direct Georgia tax offset. If you have zero Georgia tax liability, this will not benefit you, because, well, you’re already at zero and you can’t beat that! However, keep reading because even if you don’t need it, you likely know someone that this could help. So here we go….

In 2016, the Georgia General Assembly passed legislation that was signed into law by Governor Deal to award Georgia income tax credits to individuals and corporate taxpayers who contribute to qualified rural hospital organizations (“RHOs”) located in Georgia beginning January 1, 2017. This legislation aims to aid with the financial crisis that many of Georgia’s RHOs face due to demographic, economic and health care industry challenges. The Georgia HEART Hospital Program is helping rural and critical access hospitals take advantage of this opportunity to increase their funding and consequently significantly strengthen their ability to provide for the health care needs of thousands of Georgians.

How can this help you? As a Georgia taxpayer, if you contribute to a Georgia RHO (on the approved and qualified list referenced later) you will receive a direct offset to your Georgia tax liability. Dollar for dollar. And let’s not forget about the charitable deduction you’ll receive on your federal tax return. While you cannot double dip and that charitable deduction is added back for Georgia purposes, the bottom line should still be a net positive benefit to you, especially given the federal tax reform legislation that was passed for 2018. Let me walk you through some of the additional details that are to be expected when government legislation is involved.

During 2017, taxpayers contributed to this program (within certain prescribed limitations) and received a 90% credit against their Georgia tax for their contribution as well as a federal charitable deduction for their full contribution. In 2017, this was effective for some taxpayers because it shifted an itemized state income tax deduction to a charitable deduction and helped to fight the alternative minimum tax (“AMT”) battle. Since the Trump administration passed the 2017 Tax Cuts and Jobs Act, AMT is likely no longer an issue for many taxpayers who were previously affected. But, the tax reform severely limited the state and local taxes (“SALT”) deduction. So, while combating AMT may no longer be an issue, fighting a limited SALT deduction is one of the newest benefits of participating in this program in 2018.

And, effective, July 1, 2018, this legislation has been enhanced to provide an even larger benefit to taxpayers. During the first six months of the year (January 1 – June 30) taxpayers may participate in this program with the following limitations on their HEART RHO contributions:
  • In the case of a single individual or a head of household,a 100% Georgia income tax credit for contributions to RHOs, up to a limit of $5,000
  • In the case of a married couple filing a joint return, a 100% Georgia income tax credit for contributions to RHOs, up to a limit of $10,000
  • An individual who is a member of a limited liability company, shareholder of an "S" Corporation, or partner in a partnership (pass-through entities) is allowed a 100% Georgia income tax credit for up to $10,000 of the amount they contribute to an RHO, so long as they would have paid Georgia income tax in that amount on their share of taxable income from the pass-through entity.
This sounds very much like the Georgia GOAL tax credit, except with higher individual limits. However, due to the popularity of GOAL, a taxpayer will typically no longer receive approval for a maximum tax credit. Because the HEART credit is still new, from 2018 through 2021, Georgia taxpayers can access $60 million of RHO tax credits each year, with each qualified RHO having access to $4 million of tax credits (until the total annual $60 million cap is met). And, while you must still be pre-approved for your individual credit, you can take advantage of this in 2018 to use in 2018. In other words, you can do this now for a 2018 tax benefit.

Bottom line, this is all really good news for those of you that have Georgia tax liability and would likely otherwise be donating to a charitable organization. As if the 100% tax offset (up from 90% in 2017) is not enough, it gets even better. After June 30th of each year, for as long as a portion of the $60 million annual cap on RHO tax credits is available, individual taxpayers may make unlimited contributions to RHOs for a corresponding 100% Georgia income tax credit to offset their Georgia income tax liability. Yes, you read that right, Unlimited contributions to RHOs for a corresponding 100% Georgia income tax credit! As long as the annual cap has not been reached, you can request to be approved to contribute to an RHO versus paying the Georgia Department of Revenue.

A very brief example: let’s assume you are married filing jointly and your Georgia tax liability is close to $25,000 after all other deductions, exemptions, and credits. This legislation allows you to donate $10,000 to a qualified RHO (at some point between January and June) and receive a $10,000 corresponding tax credit on your Georgia tax returns. Then, provided the annual caps have not been reached, you could donate an additional $15,000 sometime after June 30th and receive an additional corresponding $15,000 tax credit on your Georgia tax returns. So, you effectively would not need to withhold Georgia taxes from your paycheck or make Georgia estimates. You could direct your funds to this program instead. (Yes, you could also just wait and make a one-time contribution of $25,000 after June 30th but you’d have to keep your fingers crossed that the annual cap had not been met.)

And please keep in mind, that you will also receive a federal charitable deduction for this. So, that SALT deduction limit that was referenced above, this is where that comes into play. Anyone who itemizes on their tax return previously received a deduction for these taxes – this included state income taxes, real estate taxes, personal property taxes, etc. This deduction has been capped at $10,000 beginning with 2018. For many of you, this will barely cover your real estate taxes. What this program allows you to do is to shift a potentially limited state income tax deduction to an allowable charitable deduction. So, that the $25,000 (from our example) that you were having withheld from your paycheck to cover your Georgia taxes will likely no longer provide you with any type of federal benefit. However, if you made an RHO contribution for that amount, instead of having it withheld from your paycheck, you have still expended the exact same amount of money, but you would still receive that federal benefit in the form of a charitable deduction. And your money would be going to an RHO instead of the Georgia DOR.

Presently, there are 58 qualified RHOs, 52 of which are participating in Georgia HEART. View a list of participating HEART hospitals. Also important to note: on or before May 15th of each year through June 30th, individual taxpayers will be able to make a HEART appointment to authorize Georgia HEART to submit their post-June 30th tax credit pre-approval forms with the DOR. This is the unlimited one. You will find a lot more information there too! https://www.georgiaheart.org/donate/pre/tax_contribution_type

We have reviewed some specific illustrative examples of how diverting your Georgia tax withholding to this program could potentially benefit a higher income taxpayer with Georgia tax liability whose SALT deduction is severely limited under the new federal tax laws. The tax benefits are definitely worth a closer look and vary based on your income tax bracket. But in most cases, we cannot find a downside! Since all of our clients have unique income tax situations, if interested, we would be happy to assist with some individual tax calculations. Please do not hesitate to contact us with additional questions as this is something that could be beneficial to both you and many Georgia hospitals in financial crisis. We look forward to hearing from you.

Best Regards,
Danielle Van Lear

No comments: