Georgia State Income Tax Offset to be Discontinued for ERS, JRS, LRS, and PSERS

 

During the August Board meeting of the Employees’ Retirement System (ERS), the Board of Trustees voted to discontinue the 3% tax offset adjustment for ERS members whose effective date of retirement is on or after July 1, 2013. Members who retire on or before June 1, 2013 will continue to receive the 3% tax offset adjustment and will not see a decrease to their retirement payment.

The Board of Trustees of the Judicial Retirement System (JRS), the Legislative Retirement System (LRS), and the Public School Employees Retirement System (PSERS) also voted to discontinue the 1.75% tax offset adjustment for JRS, LRS and PSERS members whose effective date of retirement is on or after July 1, 2013 during the October Board meeting. Members who retire on or before June 1, 2013 will continue to receive the 1.75% tax offset adjustment and will not see a decrease to their retirement payment.

Prior to 1989, Georgia did not include income from Georgia state retirement systems as taxable income. However, the United States Supreme Court ruled in 1989 that each state must treat the taxation of federal and state retirement benefits in the same manner. In response to this ruling, the Georgia General Assembly enacted legislation in 1990 to authorize the retirement system Boards to grant a special benefit increase to retirees receiving benefits on July 1, 1990 to at least partially offset the taxation of state retirement benefits. The benefit increase was only able to be applied to the first $37,500 of annual income from the plans.

Georgia’s tax code has been amended throughout the years to increase the amount of retirement income exclusion. As of Calendar Year 2012, the amount of the exclusion is up to $35,000 for all retirees aged 62-65, and up to $65,000 for retirees aged 65 and older. Retirees who are at least 62 years old are currently receiving a double benefit by receiving both the tax offset and the tax exclusion collectively for the same retirement income. With this tax exclusion in place, the original intent of the tax adjustment is no longer valid once a retiree reaches age 62.

The Board of Trustees is committed to maintaining its position as the guardian of the retirement plans it administers by making necessary changes to ensure financial stability and actuarial soundness as required by Georgia law. For the last several years, it has been necessary to increase the employer contribution rate to the plan. Discontinuing the tax adjustment, which is a discretionary feature of the plan, is part of the overall management of the plan for the protection of the members, retirees, and beneficiaries the retirement system serves.

The discontinuation of the tax offset does not impact the retirement benefit calculation that is defined in Georgia Law. Retirement estimates produced by ERSGA do not include the tax adjustment (and never have) as this has always been a discretionary adjustment granted only at the time of retirement.

Please feel free to contact our office if you have any questions or concerns regarding this change.