If you run a Georgia S-corp, partnership, or sole proprietorship, you probably heard the headline: the state income tax rate just dropped to 4.99%. What most coverage skipped is the part that actually changes your tax bill this year — and the part that, if you elected Georgia's pass-through entity tax, doesn't change at all.
Governor Brian Kemp signed HB 463 in May 2026, cutting Georgia's flat income tax rate from 5.19% to 4.99% for tax years beginning January 1, 2026. Kemp called it hitting a rate below 5% "three years ahead of schedule," and for once the political framing and the fiscal reality mostly line up. But the mechanics matter more than the round number, especially if your business income flows through to your personal return, or if you made an entity-level tax election to work around the federal SALT deduction cap.
What HB 463 Actually Changed
Georgia has used a single flat income tax rate for individuals and corporations since 2024, when it fully phased out its old graduated bracket system. HB 463 takes that flat rate down further, and layers on a few adjacent changes:
- Income tax rate: 5.19% → 4.99%, effective for tax years starting January 1, 2026. This applies to both personal income tax and the corporate income tax rate.
- A path to 3.99%: the bill sets up further annual cuts of 0.125 percentage points, but only if the state hits specific revenue collection targets each year. These reductions are not automatic — if collections fall short, the rate stays put. Don't build a five-year tax plan assuming the floor is guaranteed.
- Standard deduction increase: for 2026, the standard deduction rises to $30,000 for married filing jointly and $15,000 for single, head of household, and married filing separately.
- Dependent exemption increase: starting in 2027, the dependent exemption rises from $4,000 to $5,000, then climbs $125 a year until it reaches $6,000.
- Retirement income exclusion: increases to $70,000 beginning in 2027, relevant if you're winding down a business and drawing retirement income alongside it.
- Temporary overtime and tips exclusion: through 2028, up to $1,750 of overtime pay and $1,750 of cash tips are excluded from state taxable income. Note this is narrower than the federal exclusion under the One Big Beautiful Bill Act, so an employee's overtime or tips can be state-taxable even after they're federally exempt — a mismatch that shows up as a book-tax difference if you're not tracking it separately in payroll.
- Some credits and exemptions repealed: the bill trims a handful of existing tax credits and sales/use tax exemptions to help pay for the rate cut. If your business relies on a Georgia credit you haven't checked recently, it's worth confirming it survived.
The Part Most Coverage Missed: Pass-Through Owners and the PTET Rate
Here's where it gets specific to small business owners rather than W-2 employees. If your business is a pass-through entity — an S-corp or partnership — your share of business income is generally taxed on your personal Georgia return at the individual rate. That means the drop to 4.99% flows straight through to you on income reported the ordinary way.
But if you made Georgia's pass-through entity tax election (PTET), the math is different. Since 2022, Georgia has let S-corps and partnerships elect to pay Georgia income tax at the entity level instead of passing it through to owners' personal returns. The appeal is the federal SALT cap workaround: the entity deducts the state tax as a business expense on its federal return, with no $10,000 cap, which usually reduces the owners' federal taxable income more than paying the tax personally would.
The catch: Georgia's PTET rate is set separately, at a flat 5.75%, under the statute that created the election (HB 149). HB 463 cut the individual and corporate rates. It did not touch the PTET rate. If your accountant made the PTET election for your S-corp or partnership, your entity is still paying tax at 5.75% — a full 0.76 percentage points above the new 4.99% individual rate, and climbing to potentially 1.76 points above the rate if the state reaches its 3.99% floor over the next several years.
That gap doesn't necessarily mean PTET stops making sense — the federal deduction benefit often outweighs the state-rate difference, especially for owners who itemize and are otherwise capped at $10,000 of SALT deductions. But it's a comparison worth rerunning now, not assuming it's unchanged from when you first made the election. If you're on the fence for this filing year, ask your CPA to model both paths against your actual 2026 numbers: PTET at 5.75% with the unlimited federal deduction, versus the ordinary pass-through route at 4.99% with your personal SALT cap exposure.
What to Actually Do About It
Update your withholding and estimated payments. Georgia's Department of Revenue issued a revised 2026 withholding guide reflecting the 4.99% rate. If you run payroll for yourself as an S-corp owner, or you make quarterly estimated payments as a sole proprietor, recalculate based on the new rate rather than carrying over last year's figures — overpaying ties up cash you could otherwise use in the business, and underpaying risks a penalty if your estimate drifts too far from what you actually owe.
Don't plan five years out on the 3.99% floor. The additional 0.125-point annual cuts depend on Georgia hitting revenue targets. Treat each future reduction as "possible, not scheduled" until the state actually confirms it hit the trigger.
Revisit your PTET election with real 2026 numbers. Don't assume the calculus from 2022 or 2023 still holds. The individual rate has moved twice since PTET launched; the entity-level rate hasn't moved at all.
Track the overtime/tips gap in payroll, not just on the tax return. If you pay hourly staff overtime or your business collects tips, the federal exclusion (from OBBBA) and Georgia's smaller, temporary $1,750-per-category exclusion diverge. Get your payroll system or bookkeeper flagging that difference now rather than reconciling it at year-end.
Check whether a credit or exemption you use got trimmed. HB 463 paid for part of the rate cut by repealing some existing credits and sales/use tax exemptions. If your business claims a Georgia-specific credit, confirm it's still on the books before you build it into your 2026 tax projections.
Why This Is a Bookkeeping Problem, Not Just a Tax Problem
Every one of these changes — the rate cut, the PTET rate gap, the overtime/tips mismatch, the standard deduction bump — only helps you if your books can actually answer "how much taxable income did the business generate this year, and how is it split between entity-level and owner-level tax?" That's much easier to answer when your ledger tracks accounts, not just a shoebox of receipts and a bank feed you reconcile once a quarter.
Beancount.io gives you plain-text accounting you can query and audit yourself — every transaction is a line you can see, not a black box a payroll or bookkeeping app abstracts away. That transparency matters most exactly when a state law changes mid-year and you need to know, precisely, what your entity paid versus what flowed through to your personal return. Get started for free and keep your books ready for whatever Georgia's legislature does next.