Georgia Pension Taxes: Understanding Taxability & Benefits

Georgia state laws differ from federal law on the issue of income taxation. When you spend your entire life building a retirement savings, having this money taxed means you are losing your precious retirement income. Fortunately, Georgia is favorable in regards to how it taxes pension income that you receive from your employer.

Significance

The income tax in Georgia is a graduated income tax based on your federal taxable income. The revenue department assesses income taxes on income you receive from pensions. However, the state also provides tax relief in the form of an exemption on retirement income. This exemption extends to income derived from pension income if you're over age 62 or if you're disabled.

Benefit

You may exclude $35,000 of retirement income if you're over age 62 or you're under age 62 and totally and permanently disabled. Starting in 2012, you may exclude $65,000. This allows you to make a significant amount of money during your retirement years without being taxed on this income at the state level.

Disadvantage

The exclusion does not cover all income even with the high exclusion amount. If you exceed the threshold, you'll pay income tax at the ordinary income tax rate. Even though you're taxed only if you make over $35,000 — $65,000 after 2012 — this means you must do some tax planning if you want significant income during your retirement.

Consideration

Consider diversifying your retirement income if you need additional money. For example, money you borrow against the value of a life insurance policy to use as retirement income is tax-free as long as the policy remains in force. This alternative source of retirement income avoids the exemption limit and allows you to draw additional income in addition to your pension income.