560-7-4-.02 Procedures Governing Retirement Income Exclusion.

Amended. (1) Eligibility. Eligibility is provided in O.C.G.A. § 48-7-27. (2) Married Filing Jointly. In the case of a married couple filing jointly, each spouse shall if otherwise qualified be individually entitled to exclude retirement income received by that spouse up to the exclusion amount for such spouse. Taxpayers must qualify on a separate basis. One spouse may not use any income attributable to the other spouse in the calculation of his or her retirement exclusion. If property is jointly owned, income derived is allocated to each taxpayer at 50 percent of the total. (3) Effect on Other Adjustments. The exclusion provided for in this paragraph shall not apply to or affect and shall be in addition to those adjustments to net income provided for under O.C.G.A. §§ 48-7-27 and 48-7-28.2. Accordingly, the other income and loss adjustments to Georgia taxable income that are required by O.C.G.A. §§ 48-7-27 and 48- 7-28.2 shall be added or subtracted first before computing the retirement income exclusion. Only retirement income that is included in Georgia taxable income shall be included when computing the retirement income exclusion. (4) Computation of the Exclusion. (a) The amount of the exclusion shall be determined based on O.C.G.A. § 48-7- 27(a)(5)(A). (b) Retirement Income. 1. For the purpose of this paragraph, retirement income shall be divided into two parts, the unearned income portion of the retirement income exclusion and the earned income portion of the retirement income exclusion. The unearned income portion of the retirement income exclusion shall include interest income, dividend income, net income or loss from rental property that is not subject to Federal FICA tax or Federal self employment tax, partnership income that is not subject to Federal FICA tax or Federal self employment tax, income from an S-corporation in which the taxpayer or the taxpayer's spouse does not materially participate and non trade or business income from an S-corporation in which the taxpayer or the taxpayer's spouse materially participates, capital gains or losses, income from royalties, income from pensions and annuities, and other similar income. The earned income portion of the retirement income exclusion is limited to no more than $4,000.00 of an individual's earned income. This shall include, but not be limited to, the net business income earned by an individual from any trade or business carried on by such individual, net income or loss from rental property that is subject to Federal FICA tax or Federal self employment tax, partnership income that is subject to Federal FICA tax or Federal self employment tax, trade orbusiness income from an S- corporation in which the taxpayer orthe taxpayer's spouse materially participates, wages, salaries, tips, and other employer compensation. For purposes of this paragraph, material participation shall be determined in the same manner as provided in Internal Revenue Code Section 469. 2. Retirement income shall not include income received directly or indirectly from lotteries, gambling, illegal sources, or similar income. Indirect income from lotteries, gambling, illegal sources, or similar income shall include but not be limited to such income received through partnerships, S corporations, limited liability companies, trusts, estates, etc. (c) The earned income portion of the retirement income exclusion shall be computed separately from the unearned income portion of the retirement income exclusion. For both the earned income portion of the retirement income exclusion and the unearned income portion of the retirement income exclusion, losses shall be offset against income. If after each portion has been separately computed, either portion is less than zero, the portion that is less than zero shall not be offset against the other portion. For example, if the earned income portion of the retirement exclusion is a negative $3,000 and the unearned income portion of the retirement income exclusion is a positive $9,000, the total retirement income exclusion that is allowed shall be $9,000. (5) Part-Year Residents and Nonresidents. (a) Part-year residents and nonresidents must prorate the retirement income exclusion. The earned income portion and the unearned income portion shall each be separately prorated. Such portions shall be prorated using the ratio of Georgia source retirement income to retirement income computed as if the taxpayer were a resident of Georgia for the entire year. (b) Example 1: 1. A taxpayer that is 62 years old has $1,000 of earned retirement income that is sourced to Georgia. The taxpayer has total earned retirement income of $10,000 computed as if the taxpayer were a resident of Georgia for the entire year. The earned income portion of the retirement exclusion is $400 ($1,000 / $10,000 x $4,000). 2. The same taxpayer also has $5,000 of unearned retirement income that is sourced to Georgia. The taxpayer has total unearned retirement income of $50,000 computed as if the taxpayer were a resident of Georgia for the entire year. The unearned income portion of the retirement exclusion is $3,100 ($5,000 / $50,000 x $31,000 (maximum retirement exclusion of $35,000 less the maximum earned income portion of $4,000)). The taxpayer also has $7,000 of Georgia lottery winnings which are not retirement income and therefore are not considered when computing the retirement exclusion. (c) Example 2: 1. A taxpayer that is 62 years old has $1,000 of earned retirement income that is sourced to Georgia. The taxpayer has total earned retirement income of $2,000 computed as if the taxpayer were a resident of Georgia for the entire year. The earned income portion of the retirement exclusion is $1,000 ($1,000 / $2,000 x $2,000). 2. The same taxpayer also has $5,000 of unearned retirement income that is sourced to Georgia. The taxpayer has total unearned retirement income of $50,000 computed as if the taxpayer were a resident of Georgia for the entire year. The unearned income portion of the retirement exclusion is $3,300 ($5,000 / $50,000 x $33,000 (maximum retirement exclusion of $35,000 less the earned income of $2,000)). The taxpayer also has $7,000 of Georgia lottery winnings which are not retirement income and therefore are not considered when computing the retirement exclusion. (6) Effective Date. The provisions set forth in this regulation will apply to taxable years beginning on or after January 1, 2011. Taxable years beginning before January 1, 2011 will be governed by the regulations of Chapter 560-7 as they exist before January 1, 2011 in the same manner as if the amendments thereto set forth in this regulation had not been promulgated. Authority: O.C.G.A. Secs. 48-2-12, 48-7-27. History. Original Rule entitled "Dealers in Personal Property" adopted. F. and eff. June 30, 1965. Repealed: F. Feb. 16, 1972; eff. Mar. 7, 1972. Amended: New Rule entitled "Procedures Governing Retirement Income Exclusion" adopted. F. Feb. 24, 1996; eff. Mar. 16, 1996. Repealed: New Rule of same title adopted. F. Mar. 25, 1987; eff. Apr. 14, 1987. Repealed: New Rule of same title adopted. F. Dec. 26, 2001; eff. Jan. 15, 2002. Amended: F. Apr. 5, 2011; eff. Apr. 25, 2011. Rule 560-7-4-.03. Withholding: Procedures Governing Excess Withholding Allowances.Amended. (1) These regulations set forth circumstances under which employers are required to submit withholding exemption certificates received from the employees and provide a procedure for declaring such certificates to be defective. Finally, after such certificates have been declared defective, these regulations provide a procedure by which the Commissioner specifies to an employee the basis upon which amounts of withholding are to be computed. (2) An employer shall submit to the Commissioner a copy of any withholding exemption certificate furnished to the employer together with a copy of any written statement received from the employee in support of the claims made by the employee on the certificate received from the employee during the calendar quarter (even if not in effect at the end of the quarter) if the employee is employed by that employer on the last day of the calendar quarter and if: (a) The total number of withholding dependency exemptions (within the meaning of Code Section 48-7-102) claimed on the certificate exceeds 14; or (b) The employer has actual knowledge that the total number of withholding dependency exemptions (within the meaning of Code Section 48-7-102) claimed on the certificate exceeds the number of exemptions to which the employee is properly entitled; or (c) The certificate indicates that the employee claims a status exempting the employee from withholding, and the exception provided by paragraph (3) does not apply. (3) A copy of the certificate shall not be submitted under sub-paragraph (b) of paragraph (2) if the employer reasonably expects, at the time the certificate is received, that the employee's wages from that employer shall not then usually exceed $200 per week. (4) Copies required to be submitted under paragraph (2) shall be submitted at the time and place of filing the calendar quarterly return for the quarter during which the withholding exemption certificates in question were received by the employer. Such calendar quarterly returns shall be used to transmit such copies. At the choice of the employer, copies required to be submitted under paragraph (2) may be submitted earlier and for shorter reporting periods than a calendar quarter. In such case, the employer shall submit the copies at the place where the employer would file a calendar quarterly return and shall include with the submission a statement showing the employer's name, address, employer identification number, and the number of copies of withholding exemption certificates submitted. However, in no event shall a copy be submitted later than the time for filing the return required to be submitted for the calendar quarter during which the withholding exemption certificate was received. (5) An employer shall also submit to the Commissioner a copy of any currently effective withholding exemption certificate (or make the original certificate available for inspection), together with a copy of any written statement received from the employee in support of the claims made on the certificate, upon written request of the Commissioner. The request of the Commissioner may relate either to one or more named employees or to one or more reasonably segregable units of the employer. In this regard, the Commissioner may, by written notice, advise the employer that a copy of each new withholding exemption certificate received from one or more named employees, or from one or more reasonably segregable units of the employer, is to be submitted to the Commissioner. The employer shall then submit to the Commissioner a copy of each such new certificate of each such employee immediately after the employer receives the new certificate from the named employee. (6) Until receipt of written notice from the Commissioner that a certificate, a copy of which was submitted to the Commissioner under this section, is defective, that certificate is effective and the employer shall withhold on the basis of the statements made in that certificate, unless that certificate must be disregarded under the provisions of paragraph (11) of this Rule. (7) If the Commissioner finds that a copy of a withholding exemption certificate which has been submitted contains a materially incorrect statement, or if the Commissioner determines, after written request to the employee for verification, that he lacks sufficient information to determine if the certificate is correct, the Commissioner shall notify the employer in writing that the certificate is defective and the employer shall thereafter consider the certificate to be defective for purposes of computing amounts of withholding. (8) If the Commissioner notifies the employer that the certificate is defective, the Commissioner shall, based upon his findings, advise the employer as follows: (a) That the employee is not entitled to claim a status exempting the employee from withholding; (b) That the employee is not entitled to a particular withholding exemption status as specified in subsection (a) of Code Section 48-7-102; (c) That the employee is not entitled to claim a total number of withholding dependency exemptions in excess of a number specified by the Commissioner in the notice; or (d) All of the above. (9) The Commissioner shall provide the employer with a copy for the employee of each notice he furnished to the employer under this subsection in addition to the notice furnished to the employer for his own use. The Commissioner shall also mail a similar notice to the employee at the address of the employee shown on the certificate under review. (10) The employer shall promptly furnish the employee who filed the defective certificate, if still in his employ, with a copy of the written notice of the Commissioner with respect to the certificate and may request another withholding exemption certificate from the employee. The employer shall withhold amounts from the employee on the basis of the withholding exemption status and the maximum number of withholding dependency exemptions specified in the written notice received from the Commissioner. (11) If and when the employee does file any new certificate (after an earlier certificate of the employee was considered to be defective), the employer shall withhold on the basis of that new certificate (whenever filed) as currently effective only if the new certificate does not make a claim of exempt status, of a withholding exemption status, or of a number of withholding dependency exemptions inconsistent with the advice earlier furnished by the Commissioner in his written notice to the employer. If any new certificate does make a claim which is inconsistent with the advice contained in the Commissioner's written notice to the employer, then the employer shall disregard the new certificate, shall not submit that certificate to the Commissioner, and shall continue to withhold amounts from the employee on the basis of the withholding exemption status and maximum number of withholding dependency exemptions specified in the written notice received from the Commissioner. (12) If the employee makes a claim on any new certificate that is inconsistent with the advice in the Commissioner's written notice to the employer, the employee may specify on such new certificate, or by a written statement attached to the certificate, any circumstances of the employee which have changed since the date of the Commissioner's earlier written notice, or any other circumstances or reasons, as justification or support for the claims made by the employee on the new certificate. The employee may then submit that new certificate and written statement either to the Commissioner or to the employer, who must then submit a copy of that new certificate and the employee's written statement (if any) to the Commissioner. The employer shall continue to disregard that new certificate and shall continue to withhold amounts from the employee on the basis of the withholding exemption status and maximum number of withholding dependency exemptions specified in the written notice received from the Commissioner unless and until the Commissioner by written notice advises the employer to withhold on the basis of that new certificate and revokes his earlier written notice. (13) For purposes of this rule, the term "employer" includes an individual authorized by the employer to receive withholding exemption certificates, to make withholding computations, or to make payroll distributions. Authority: O.C.G.A. Secs. 48-7-102.1 and 48-2-12. History. Original Rule entitled "Sales of Realty and Casual Sales of Personalty" adopted. F. and eff. June 30, 1965. Repealed: F. Feb. 16, 1972; eff. Mar. 7, 1972. Amended: New Rule entitled "Withholding Procedures Governing Excess Withholding Allowances" adopted. F. Jan. 17, 1986; eff. Feb. 6, 1986. Rule 560-7-4-.04. Procedures Governing the Georgia Higher Education Savings Plan. (1) Definitions. (a) Federal Adjusted Gross Income. The term "federal adjusted gross income" means federal adjusted gross income, as defined in the United States Internal Revenue Code of 1986. (b) Georgia Higher Education Savings Plan. The term "Georgia Higher Education Savings Plan" is defined as the plan that is established under Article 11 of Chapter 3 of Title 20 of the Official Code of Georgia Annotated for purposes of maintaining the Georgia Higher Education Savings Plan Trust and qualified tuition programs under Section 529 of the Internal Revenue Code. (c) Account Owner. The term "account owner" is defined the same as it is defined in O.C.G.A. § 20-3-632. (d) Separate or Single Return. The term "separate or single return" is defined as a return which is filed using the filing status of married filing separate, head of household, qualifying widower, or single. (e) Qualified Withdrawals. The term "qualified withdrawals" is defined as provided in O.C.G.A. § 20-3-632. (f) Qualified Higher Education Expenses. The term "qualified higher education expenses" is defined the same as it is defined in O.C.G.A. § 20-3-632. (2) Deduction Provisions for Taxable Years beginning before January 1, 2007. (a) For taxable years beginning on or after January 1, 2002 and prior to January 1, 2007, an amount may be subtracted from federal adjusted gross income to arrive at Georgia taxable net income that is equal to the amount of contributions by parents or guardians to the Georgia Higher Education Savings Plan on behalf of a designated beneficiary who is claimed as a dependent on the Georgia income tax return of the beneficiary's parents or guardians, but not exceeding $2,000.00 per beneficiary. If the parents or guardians file joint returns or separate or single returns, the sum of contributions constituting deductions on their returns under this paragraph shall not exceed $2,000.00 per beneficiary. 1. In the case where parents or guardians file separate or single returns the deduction specified in this paragraph shall be allocated as follows: (i) If only one parent or guardian makes the contribution, the deduction shall be allocated to the parent or guardian who made the contribution. (ii) If more than one parent or guardian makes the contribution, the deduction shall be allocated to each parent or guardian based on the ratio of the contribution made by each parent or guardian to the total contributions made by the parents and guardians. In the case of a contribution made from joint funds, the deduction shall be allocated fifty percent to each parent or guardian. (iii) Once the allocation has been made, the deduction for each parent or guardian shall be subject to the limitations specified in subparagraph (b) of this paragraph. (b) In order to claim the deduction under this paragraph for a taxable year: 1. Such parent or guardian must have claimed and been allowed itemized deductions pursuant to Section 63(d) of the Internal Revenue Code of 1986 and paragraph (1), subsection (a) of O.C.G.A. § 48-7-27; 2. The federal adjusted gross income for such taxable year cannot exceed $100,000.00 for a joint return or $50,000.00 for a separate or single return except as provided in subparagraph (b)4. of this paragraph; and 3. Such parent or guardian must be the account owner of the designated beneficiary's account. 4. The maximum deduction authorized by this paragraph for each beneficiary shall decrease by $400.00 for each $1,000.00 of federal adjusted gross income over $100,000.00 for a joint return or $50,000.00 for a separate or single return. (i) The maximum deduction for a joint return is as follows: Federal Adjusted Gross Income Maximum Deduction $100,000.00 through $100,999.99 $2,000.00 $101,000.00 through $101,999.99 $1,600.00 $102,000.00 through $102,999.99 $1,200.00 $103,000.00 through $103,999.99 $ 800.00 $104,000.00 through $104,999.99 $ 400.00 $105,000.00 and over $ 0.00 (ii) The maximum deduction for a separate or single return is as follows: Federal Adjusted Gross Income Maximum Deduction $50,000.00 through $50,999.99 $2,000.00 $51,000.00 through $51,999.99 $1,600.00 $52,000.00 through $52,999.99 $1,200.00 $53,000.00 through $53,999.99 $ 800.00 $54,000.00 through $54,999.99 $ 400.00 $55,000.00 and over $ 0.00 (c) For purposes of this paragraph, contributions or payments for any such taxable year may be made during or after such taxable year but on or before the deadline for making contributions to an individual retirement account pursuant to Section 219(f)(3) of the Internal Revenue Code of 1986. (d) For purposes of this paragraph, the term "contributions" does not include amounts transferred or rolled over from another account included in a Qualified Tuition Program that qualifies under Section 529 of the Internal Revenue Code of 1986. In this case, the contribution is considered to have been made at the time the money was contributed to the other account and not at the time the rollover or transfer occurs. (3) Deduction Provisions for Taxable Years beginning on or after January 1, 2007 and before January 1, 2016. (a) For taxable years beginning on or after January 1, 2007 and before January 1, 2016, an amount may be subtracted from federal adjusted gross income to arrive at Georgia taxable net income that is equal to the amount of contributions to the Georgia Higher Education Savings Plan on behalf of a designated beneficiary, but not exceeding $2,000.00 per beneficiary. If the contributor files a separate return or single return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $2,000.00 per beneficiary. If the contributor files a joint return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $2,000.00 per beneficiary. (b) For purposes of this paragraph, contributions or payments for any such taxable year may be made during or after such taxable year but on or before the deadline for making contributions to an individual retirement account under federal law for such taxable year. (c) For purposes of this paragraph, the term "contributions" does not include amounts transferred or rolled over from another account included in a Qualified Tuition Program that qualifies under Section 529 of the Internal Revenue Code of 1986. In this case, the contribution is considered to have been made at the time the money was contributed to the other account and not at the time the rollover or transfer occurs. (4) Deduction Provisions for Taxable Years beginning on or after January 1, 2016 and before January 1, 2020. (a) For taxable years beginning on or after January 1, 2016 and before January 1, 2020, an amount may be subtracted from federal adjusted gross income to arrive at Georgia taxable net income that is equal to the amount of contributions to the Georgia Higher Education Savings Plan on behalf of a designated beneficiary, but not exceeding the amount specified in this paragraph. If the contributor files a separate return or single return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $2,000.00 per beneficiary. If the contributor files a joint return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $4,000.00 per beneficiary. (b) For purposes of this paragraph, contributions or payments for any such taxable year may be made during or after such taxable year but on or before the deadline for making contributions to an individual retirement account under federal law for such taxable year. (c) For purposes of this paragraph, the term "contributions" does not include amounts transferred or rolled over from another account included in a Qualified Tuition Program that qualifies under Section 529 of the Internal Revenue Code of 1986. In this case, the contribution is considered to have been made at the time the money was contributed to the other account and not at the time the rollover or transfer occurs. (5) Deduction Provisions for Taxable Years beginning on or after January 1, 2020. (a) For taxable years beginning on or after January 1, 2020, an amount may be subtracted from federal adjusted gross income to arrive at Georgia taxable net income that is equal to the amount of contributions to the Georgia Higher Education Savings Plan on behalf of a designated beneficiary, but not exceeding the amount specified in this paragraph. If the contributor files a separate return or single return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $4,000.00 per beneficiary. If the contributor files a joint return, the sum of contributions constituting deductions on the contributor's return under this paragraph shall not exceed $8,000.00 per beneficiary. (b) For purposes of this paragraph, contributions or payments for any such taxable year may be made during or after such taxable year but on or before the deadline for making contributions to an individual retirement account under federal law for such taxable year. (c) For purposes of this paragraph, the term "contributions" does not include amounts transferred or rolled over from another account included in a Qualified Tuition Program that qualifies under Section 529 of the Internal Revenue Code of 1986. In this case, the contribution is considered to have been made at the time the money was contributed to the other account and not at the time the rollover or transfer occurs. (6) Exclusion Provisions. For taxable years beginning on or after January 1, 2002 and before January 1, 2008, the amount of any qualified withdrawals from the Georgia Higher Education Savings Plan used solely for qualified higher education expenses shall not be subject to state income tax under this chapter. Accordingly, any such amount that has been included in federal adjusted gross income may be subtracted to arrive at Georgia taxable net income. (a) Additional Exclusion Provisions. For taxable years beginning on or after January 1, 2008 except as otherwise provided in this rule and O.C.G.A. § 48-7-27, the amount of any qualified withdrawals from the Georgia Higher Education Savings Plan shall not be subject to state income tax under this chapter. Accordingly, any such amount that has been included in federal adjusted gross income may be subtracted to arrive at Georgia taxable net income. (7) Other Withdrawals. (a) For withdrawals other than qualified withdrawals from the Georgia Higher Education Savings Plan, the proportion of earnings in the account balance at the time of the withdrawal shall be applied to the total funds withdrawn to determine the earnings portion to be included in the account owner's Georgia taxable net income in the year of the withdrawal. If the earnings amount is not already included in federal adjusted gross income, the difference between the amount computed under this subparagraph and the amount already included in federal adjusted gross income shall be added to the taxpayer's federal adjusted gross income to arrive at Georgia taxable net income. In the case this difference is a negative number, this difference shall be subtracted from the taxpayer's federal adjusted gross income to arrive at Georgia taxable net income. In the case the withdrawal is paid to the beneficiary and is included in the beneficiary's federal adjusted gross income, the beneficiary shall subtract the amount included in federal adjusted gross income to arrive at Georgia taxable net income provided the account owner has made the addition as is required by this subparagraph. (b) For withdrawals other than for qualified higher education expenses from the Georgia Higher Education Savings Plan which occurred in a taxable year beginning on or after January 1, 2002 and before January 1, 2008, the proportion of the contributions in an account balance at the time of such withdrawal which previously, in any year, have been used to reduce Georgia taxable net income pursuant to paragraphs (2) and (3) shall be applied to the nonearnings portion of the total funds withdrawn to determine an amount to be included in the account owner's taxable net income in the same taxable year. If the amount is not already included in federal adjusted gross income, the amount computed under this subparagraph shall be added to the taxpayer's federal adjusted gross income to arrive at Georgia taxable net income. 1. For a taxable year beginning on or after January 1, 2008 with respect to withdrawals other than qualified withdrawals from the Georgia Higher Education Savings Plan and withdrawals from the Georgia Higher Education Savings Plan which are rolled over to a qualified tuition program other than the Georgia Higher Education Savings Plan, the proportion of the contributions in an account balance at the time of such withdrawal which previously, in any year, have been used to reduce Georgia taxable net income pursuant to paragraphs (2), (3), (4), and (5) shall be applied to the nonearnings portion of the total funds withdrawn to determine an amount to be included in the account owner's taxable net income in the same taxable year. If the amount is not already included in federal adjusted gross income, the amount computed under this subparagraph shall be added to the taxpayer's federal adjusted gross income to arrive at Georgia taxable net income. (c) The following example illustrates how the ratios described in subparagraphs (7)(a) and (7)(b) should be applied. The facts are as follows: The total account balance at the time of the withdrawal is $10,000. This consists of $2,000 of earnings, $3,000 of contributions which previously have been used to reduce Georgia taxable net income pursuant to paragraphs (2), (3), (4), and (5), and $5,000 of contributions which previously have not been used to reduce Georgia taxable net income pursuant to paragraphs (2), (3), (4), and (5). During the year a $4,000 taxable withdrawal is made from the account. 1. The earnings portion to be included in the account owner's Georgia taxable net income in the year of the withdrawal as specified in subparagraph (7)(a) is computed as follows. Line 1. Earnings in the account $2,000 Line 2. Total balance $10,000 Line 3. Ratio, line 1 divided by line 2 20% Line 4. Amount of the withdrawal $4,000 Line 5. Earnings portion of the withdrawal, line 3 multiplied by line 4 $800 Line 6. Balance of the account which consists of earnings, line 1 less line 5 $1,200 2. The amount to be included in the account owner's Georgia taxable net income in the same taxable year as specified in subparagraph (7)(b) is computed as follows. Line 1. Contributions which previously have been used to reduce taxable net income pursuant to paragraphs (2), (3), (4), and (5) $3,000 Line 2. Total contributions, $3,000 plus $5,000 $8,000 Line 3. Ratio, line 1 divided by line 2 37.5% Line 4. Nonearnings portion of the withdrawal, $4,000 less $800 (earnings portion as computed in subparagraph (7)(c)1.) $3,200 Line 5. Amount to be included in the account owner's taxable net income in the same taxable year as specified in subparagraph (7) (b), line 3 multiplied by line 4 $1,200 Line 6. Balance of the account which consists of contributions which previously have been used to reduce taxable net income pursuant to paragraphs (2), (3), (4), and (5), line 1 less line 5 $1,800 3. The amount of the withdrawal that is attributable to contributions which previously have not been used to reduce Georgia taxable net income pursuant to paragraphs (2), (3), (4), and (5) is computed as follows. This computation is necessary in order to determine the proper Georgia income tax treatment of future withdrawals from the account. Line 1. Contributions which previously have not been used to reduce taxable net income pursuant to paragraphs (2), (3), (4), and (5) $5,000 Line 2. Total contributions, $3,000 plus $5,000 $8,000 Line 3. Ratio, line 1 divided by line 2 62.5% Line 4. Nonearnings portion of the withdrawal, $4,000 less $800 (earnings portion as computed in subparagraph (7)(c)1.) $3,200 Line 5. Amount of the withdrawal that is attributable to contributions which previously have not been used to reduce taxable net income pursuant to paragraphs (2), (3), (4), and (5), line 3 multiplied by line 4 $2,000 Line 6. Balance of the account which consists of contributions which previously have not been used to reduce taxable net income pursuant to paragraphs (2), (3), (4), and (5), line 1 less line 5 $3,000 (8) Recapture due to the Internal Revenue Code Section 222 Qualified Tuition and Related Expenses Deduction. (a) Paragraph (5), subsection (b) of O.C.G.A. § 48-7-27 specifies that income, losses, and deductions previously used in computing Georgia taxable income shall not again be used in computing Georgia taxable income and the commissioner shall provide for needed adjustments by regulation. Accordingly, in any year contributions to the Georgia Higher Education Savings Plan are withdrawn and are deducted by the taxpayer pursuant to Section 222 of the Internal Revenue Code of 1986, the amount subtracted by the taxpayer pursuant to paragraphs (2), (3), (4), and (5) in the same year and previous years, reduced by the amounts the taxpayer added to federal adjusted gross income to arrive at Georgia taxable net income pursuant to this paragraph in previous years and pursuant to subparagraph (67)(b) in the same year and previous years, shall be added to federal adjusted gross income in arriving at Georgia taxable net income for the taxpayer. In the event the amount computed under this paragraph exceeds the amount deducted pursuant to Section 222 of the Internal Revenue Code of 1986, then the amount added under this paragraph shall equal the amount deducted pursuant to Section 222 of the Internal Revenue Code of 1986. (9) Effective Date. The provisions set forth in this regulation will apply to taxable years beginning on or after January 1, 2007. Taxable years beginning before January 1, 2007 will be governed by the regulations of Chapter 560-7 as they exist before January 1, 2007 in the same manner as if the amendments thereto set forth in this regulation had not been promulgated. Authority: O.C.G.A. §§ 48-2-12, 48-7-27. History. Original Rule entitled "Alimony in General" adopted. F. and eff. June 30, 1965. Repealed: F. Feb. 16, 1972; eff. Mar. 7, 1972. Amended: New Rule entitled "Procedures Governing the Georgia Higher Education Savings Plan" adopted. F. Jan. 16, 2003; eff. Feb. 5, 2003. Amended: F. Dec. 29, 2008; eff. Jan. 18, 2009. Amended: F. Sep. 27, 2016; eff. Oct. 17, 2016. Amended: F. Nov. 21, 2019; eff. Dec. 11, 2019. Rule 560-7-4-.05. Deferred Income and Stock Options of Taxable Nonresidents. (1) Purpose. The purpose of this rule is to provide guidance regarding the administration of O.C.G.A. § 48-7-1(11), as it applies to certain nonresidents rece iving income in the form of deferred compensation or income from the exercise of stock options. (2) Definitions. (a) Taxable Nonresident. The term "taxable nonresident" means the same as defined in O.C.G.A. § 48-7-1(11). (b) Incentive Stock Options. The term "incentive stock options" means those stock options provided by Section 422 of the Internal Revenue Code. (c) Employee Stock Purchase Plan Options. The term "employee stock purchase plan options" means those stock options provided by Section 423 of the Internal Revenue Code. (d) Nonstatutory Stock Options. The term "nonstatutory stock options" means those stock options that do not meet the requirements of, and are not governed by the rules of, Sections 421 through 424 of the Internal Revenue Code. (e) Deferred Compensation. The term "deferred compensation" means deferred compensation received from a nonqualified deferred compensation plan. (f) Nonqualified deferred compensation plan. The term "nonqualified deferred compensation plan" means the same as it is defined in Internal Revenue Code Section 3121(v)(2). (3) Taxability. (a) Deferred Compensation. The deferred income received by a nonresident of Georgia, who regularly engaged in employment, trade, business, professional or other activity for financial gain or profit in a prior year within Georgia and whose deferred income exceeds the lesser of 5% of the income received from all places during the taxable year or $5,000, shall be subject to taxation in Georgia as provided in O.C.G.A. § 48-7-30. All examples in this subparagraph assume the taxpayer meets the threshold provided in this subparagraph. 1. The income earned while the taxpayer was a resident, part-year resident, or nonresident shall be allocated based on the ratio of the days worked in Georgia for the employer on or after January 1, 2011 to the total days worked for the employer. (i) Example 1. Individual A, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. Individual A was a resident of Georgia for all of 2011, worked 250 days in Georgia for the employer during 2011 and worked a total of 250 days for the employer during all of 2011. 100% (250/250) of the deferred compensation received is included in Georgia taxable income in 2012. (ii) Example 2. Individual B, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. Individual B was a resident of Georgia for all of 2011, worked 200 days in Georgia for the employer during 2011 and worked a total of 250 days for the employer during all of 2011. 80% (200/250) of the deferred compensation received is included in Georgia taxable income in 2012. (iii) Example 3. Individual C, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2011. During 2011 Individual C was a nonresident of Georgia, worked 50 days in Georgia for the employer during 2011, and worked a total of 250 days for the employer during all of 2011. 20% (50/250) of the deferred compensation received is included in Georgia taxable income in 2012. (iv) Example 4. Individual D, currently a resident of another state, receives deferred compensation in 2012 for employment performed in Georgia during 2010 and 2011. During 2010 and 2011 Individual D was a nonresident of Georgia, worked 50 days in Georgia for the employer during 2011, and worked a total of 500 days for the employer during all of 2010 and 2011. 10% (50/500) of the deferred compensation received is included in Georgia taxable income in 2012. The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 50 days worked in Georgia during 2011 are included in the numerator. 2. With respect to nonqualified deferred compensation plans governed by Internal Revenue Code Section 3121(v)(2), the amount of income earned for employment in a particular year shall be the amount determined pursuant to Internal Revenue Code Section 3121(v)(2) except that when Internal Revenue Service Regulation 31.3121(v)(2)-1(e)(4) applies, the employer must determine the amount of income for such particular year using some other reasonable method. (b) Stock Options. The income from the exercise of stock options received by a nonresident of Georgia, who engaged in employment, trade, business, professional, or other activity for financial gain or profit in a prior year within Georgia and whose income exceeds the lesser of five percent (5%) of the income received from all places during the taxable year or $5,000, shall be subject to taxation in Georgia as provided in O.C.G.A. § 48-7-30. All examples in this subparagraph assume the taxpayer meets the threshold provided in this subparagraph. 1. Incentive Stock Option. If the option is an incentive stock option (income is recognized when the stock is sold) then the amount that is included in Georg ia taxable income is computed using the following formula: (i) (During the time from the grant date to the vest date the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the time from the grant date to the vest date) x (fair market value of the stock on the exercise date less the amount paid when the stock was exercised). The amount that is included in Georgia taxable income is not changed if the fair market value at the time of the sale is higher or lower than the fair market value on the exercise date. (ii) Example 5. Individual E, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $25 per share. Individual E vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual E sold the stock on December 31, 2013 for $50 per share. Individual E was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual E was a nonresident during the period January 1, 2012 until June 30, 2012. Individual E worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual E must include the following in Georgia taxable income in the 2013 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((125+25) / 250)) 60% Income to be included in Georgia taxable income $ 6,000 (iii) Example 6. Individual F, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2011 which are exercisable on June 30, 2013 at a price of $25 per share. Individual F vested on June 30, 2012 and exercised the options on June 30, 2013. The fair market value on June 30, 2013 was $35 per share. Individual F sold the stock on December 31, 2013 for $50 per share. Individual F was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual F was a nonresident during the period January 1, 2012 until June 30, 2012. Individual F worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual F must include the following in Georgia taxable income in the 2013 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((75+25) / 250)) 40% Income to be included in Georgia taxable income $ 4,000 (iv) Example 7. Individual G, currently a resident of another state, was granted 1000 incentive stock options on July 1, 2010 which are exercisable on June 30, 2012 at a price of $25 per share. Individual G vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual G sold the stock on December 31, 2013 for $50 per share. Individual G was a resident of Georgia during the period July 1, 2010 until December 31, 2011, had 75 work days in Georgia for the employer during 2011, and had 375 total work days for the employer during this period. Individual G was a nonresident during the period January 1, 2012 until June 30, 2012. Individual G worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual G must include the following in Georgia taxable income in the 2013 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((75+25) / 500))* 20% Income to be included in Georgia taxable income $ 2,000 *The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 75 days worked in Georgia during 2011 and the 25 days worked in Georgia during 2012 are included in the numerator. 2. Employee stock purchase plan options. If the option is an employee stock purchase plan option (income is recognized when the stock is sold) then the amount that is included in Georgia taxable income is computed using the following formula: (i) (For the taxable year the option was granted the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the taxable year the option was granted) x (ordinary income recognized pursuant to the Internal Revenue Code). (ii) Example 8. Individual H, currently a resident of another state, was granted 1000 employee stock purchase plan options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $34 per share. Individual H exercises the options on this date and sells the stock on July 1, 2013 for $45 per share. The fair market value on July 1, 2011 was $40 per share. Individual H was a resident of Georgia during the period January 1, 2011 until June 30, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual H was a nonresident during the period July 1, 2011 until December 31, 2011. Individual H worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual H must include the following in Georgia taxable income in the 2013 tax year: Ordinary income recognized pursuant to the Internal Revenue Code ($40 - $34=$6 x 1000) $ 6,000 Ratio of Georgia days ((75+25) / 250)) 40% Income to be included in Georgia taxable income $ 2,400 (iii) Example 9. Individual I, currently a resident of another state, was granted 1000 employee stock purchase plan options on July 1, 2011 which are exercisable on June 30, 2012 at a price of $34 per share. Individual I exercises the options on this date and sells the stock on July 1, 2013 for $35 per share. The fair market value on July 1, 2011 was $40 per share. Individual I was a resident of Georgia during the period January 1, 2011 until June 30, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual I was a nonresident during the period July 1, 2011 until December 31, 2011. Individual I worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual I must include the following in Georgia taxable income in the 2013 tax year: Ordinary income recognized pursuant to the Internal Revenue Code ($35 - $34=$1 x 1000) $ 1,000 Ratio of Georgia days ((125+25) / 250)) 60% Income to be included in Georgia taxable income $ 600 3. Nonstatutory stock option that does not have a readily ascertainable fair market value. If the option is a nonstatutory stock option that does not have a readily ascertainable fair market value (income is recognized on the exercise date) then the amount that is included in Georgia taxable income is computed by the following formula: (i) (During the time from the grant date to the vest date the number of days worked in Georgia for the employer on or after January 1, 2011 while a resident, part-year resident, or nonresident / total number of work days for the employer during the time from the grant date to the vest date) x (fair market value of the stock on the exercise date less the amount paid when the stock was exercised). (ii) Example 10. Individual J, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2011 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2012 at a price of $25 per share. Individual J vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual J was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 125 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual J was a nonresident during the period January 1, 2012 until June 30, 2012. Individual J worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual J must include the following in Georgia taxable income in the 2012 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((125+25) / 250)) 60% Income to be included in Georgia taxable income $ 6,000 (iii) Example 11. Individual K, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2011 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2012 at a price of $25 per share. Individual K vested on June 30, 2012 and exercised the options on June 30, 2012. The fair market value on June 30, 2012 was $35 per share. Individual K was a resident of Georgia during the period July 1, 2011 until December 31, 2011, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual K was a nonresident during the period January 1, 2012 until June 30, 2012. Individual K worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual K must include the following in Georgia taxable income in the 2012 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((75+25) / 250)) 40% Income to be included in Georgia taxable income $ 4,000 (iv) Example 12. Individual L, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2010 that do not have a readily ascertainable fair market value and which are exercisable on June 30, 2013 at a price of $25 per share. Individual L vested on June 30, 2012 and exercised the options on June 30, 2013. The fair market value on June 30, 2013 was $35 per share. Individual L was a resident of Georgia during the period July 1, 2010 until December 31, 2011, had 75 work days in Georgia for the employer during 2011, and had 375 total work days for the employer during this period. Individual L was a nonresident during the period January 1, 2012 until June 30, 2012. Individual L worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual L must include the following in Georgia taxable income in the 2013 tax year: Difference between the fair market value on exercise date and the amount paid on exercise (($35 less $25) x 1000 shares) $10,000 Ratio of Georgia days from grant to vest ((75+25) / 500))* 20% Income to be included in Georgia taxable income $ 2,000 *The days worked in Georgia before January 1, 2011 are not included in the numerator and as such only the 75 days worked in Georgia during 2011 and the 25 days worked in Georgia during 2012 are included in the numerator. 4. Nonstatutory stock option that has a readily ascertainable fair market value. If the option is a nonstatutory stock option that has a readily ascertainable fair market value (income is recognized in the year the option is granted), then the amount that is included in Georgia taxable income is computed by the following formula: (i) (For the taxable year the option was granted the number of days worked in Georgia for the employer while a resident, part-year resident, or nonresident / total number of work days for the employer during the taxable year the option was granted) x (ordinary income recognized pursuant to the Internal Revenue Code). (ii) Example 13. Individual M, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2012 that have a readily ascertainable fair market value. The fair market value of the options on July 1, 2012 was $35 per share. Individual M was a resident of Georgia during the period January 1, 2012 until June 30, 2012, had 125 work days for the employer in Georgia during this period, and had 125 total work days for the employer during this period. Individual M was a nonresident during the period July 1, 2012 until December 31, 2012. Individual M worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual M must include the following in Georgia taxable income in the 2012 tax year: Ordinary income recognized pursuant to the Internal Revenue Code ($35 x 1000 shares) $35,000 Ratio of Georgia days ((125+25) / 250)) 60% Income to be included in Georgia taxable income $21,000 (iii) Example 14. Individual N, currently a resident of another state, was granted 1000 nonstatutory stock options on July 1, 2012 that have a readily ascertainable fair market value. The fair market value of the options on July 1, 2012 was $35 per share. Individual N was a resident of Georgia during the period January 1, 2012 until June 30, 2012, had 75 work days in Georgia for the employer during this period, and had 125 total work days for the employer during this period. Individual N was a nonresident during the period July 1, 2012 until December 31, 2012. Individual N worked in Georgia for the employer during this period for 25 days and had 125 total work days for the employer during this period. Individual N must include the following in Georgia taxable income in the 2012 tax year: Ordinary income recognized pursuant to the Internal Revenue Code ($35 x 1000 shares) $35,000 Ratio of Georgia days ((75+25) / 250)) 40% Income to be included in Georgia taxable income $14,000 (4) Withholding. The employer shall withhold Georgia income tax as provided in Article 5 of Chapter 7 of Title 48 on all deferred compensation and stock options which are required to be included in Georgia taxable income. (5) Withholding documentation. For purposes of determining the number of days worked in Georgia and the total days worked in a year, the employer shall use records that are available to them. However, if the records are not available, the employer may reasonably rely upon a written representation, signed under penalties of perjury, from the employee of the number of days. The employer will only be held liable if the employer had actual or constructive knowledge that the employee's written representation was false or contained erroneous information. Further, the employer may elect to determine the number of days worked in Georgia by assuming the employee worked in Georgia only during the time the employee was a resident of Georgia. (6) Effective Date. The provisions of this rule shall be effective for taxable years beginning on or after January 1, 2011. Authority: O.C.G.A. Secs. 48-2-12, 48-7-1, 48-7-30. 92-3005, 92-3006, 92-8405, 92-8406, 94-8427. History. Original Rule "Life Insurance Policies and Contracts Paid Upon Death" adopted. F. and eff. June 30, 1965. Repealed: F. Feb. 16, 1972; eff. Mar. 7, 1972. Amended: New Rule entitled "Deferred Income and Stock Options of Taxable Nonresidents" adopted. F. Sept. 1, 2011; eff. Sept. 21, 2011.