The State of Georgia has raised the tax credit for donations to rural hospitals from 90% to 100%. At the same time, the IRS has taken steps to limit the use of donations to special state funds to offset federal tax liability. Are these two tax changes at odds? Maybe, so taxpayers must consider both to understand the current status of Georgia’s hospital HEART donation program. Georgia’s FAQs on the rural hospital credit program conclude that a taxpayer who itemizes deductions for federal income tax purposes may deduct the contributions to the Georgia HEART program. While this statement is encouraging, the issue is unsettled. (See FD Insights article on forthcoming IRS regulations.) Still, the credit program offers Georgia taxpayers significant state tax benefits, as described below.
Georgia’s Hospital HEART Program
Georgia’s enactment of the rural hospital credit predates the federal state and local (SALT) deduction limit by two years. The Tax Cuts and Jobs Act (TCJA) put a $10,000 limit on the SALT deduction beginning in 2018. At that time, Georgia’s rural hospital credit was already in place. In 2016, Georgia enacted SB 258, legislation that gives Georgia income tax credits to individual and corporate taxpayers who contribute to qualified rural hospital organizations. To qualify, hospitals must be in a county with a population size of 50,000 or less, excluding military personnel, and must have tax-exempt status or be under public hospital authority management, must accept Medicare and Medicaid, and must provide a minimum annual amount of indigent or uncompensated care. (Click here for a list of qualified hospitals.)
Annual Credit Caps
The credits are capped at $60 million per year with a per hospital limit as well. To keep within the overall state cap, taxpayers’ credits are limited for the first six months of the year but increased during the next six months if the $60 million state-level cap has not been reached. In that case, taxpayers can get pre-approval for increased credits during the second half of the year.
From January 1 through June 30 of each taxable year, the following limits apply:
- Single taxpayers — $5,000.
- Marrieds filing jointly — $10,000
- Owners in passthrough entities — $10,000, if they owe Georgia income tax in that amount on their share of pass-through income.
- C Corporations and trusts — 100% credit for the amount of the contribution or 75% of the corporation’s or trust’s income tax liability, whichever is less.
For the second half of the year, taxpayers can take an unlimited credit if the $60 million state limit is not reached. Taxpayers who wish to participate in the Georgia HEART hospital tax credit program must be pre-approved by the Georgia Department of Revenue (DOR). The DOR then sets aside a certain amount of the available tax credits specifically for taxpayers requesting approval.
The credits are nonrefundable but may be carried forward five years if they exceed a taxpayer’s tax liability for the year.
Credits Increased for 2018
For the first six months of 2018, new Georgia legislation, HB 769, allows a 100% credit for up to $11,111 for a married filing joint taxpayer and $5,556 for all other individual taxpayers, provided that the credit caps are not reached. So far, donations to the program have fallen short of the $60 million credit cap, so the State is trying to attract increased donations. The DOR issued a notice on the 2018 credit increase to explain to taxpayers how to claim the increased credit. The DOR will notify each donor if the relevant caps are not met. Also, on July 1, 2018, taxpayers will be able to request the higher limits under the new law.
Georgia Advises Taxpayers on Federal Deductions
The FAQs on the Georgia Hospital HEART Program website state that Georgia taxpayers can get a federal tax deduction for contributions to the program even after enactment of the TJCA. Here’s the relevant language:
- How does the new federal tax law, effective January 1, 2018, impact the Georgia HEART tax credit?A. Effective January 1, 2018, for federal income tax purposes, taxpayers who itemize their deductions may only deduct $10,000 of their state and local taxes (“SALT”). By contributing to a Georgia HEART RHO, taxpayers can receive a 100% Georgia income tax CREDIT and 100% federal itemized deduction. In the case of Georgia taxpayers who are facing the $10,000 SALT deduction limit, contributing to a rural hospital in this manner can result in significant tax savings, especially for those individual taxpayers who, after June 30 of each year, are able to contribute in excess of $10,000 in exchange for a RHO tax credit.
This FAQ may have been written before the IRS Notice warning that state programs cannot be used to circumvent the SALT deduction cap. Thus, more guidance from the IRS will be needed to determine whether the IRS will challenge federal deductions for donations to Georgia’s rural hospitals. As encouraging as the Georgia FAQ sounds, the HEART website also states, “Georgia HEART recommends that all taxpayers consult with their accountants or tax preparers to determine the federal and state income tax effect of contributing to a RHO.” Good advice. The professionals at Frazier & Deeter are here to answer your questions.