Georgia does not automatically pick up the federal OBBBA tips deduction (up to $25,000): Georgia starts from federal AGI and the federal deduction is claimed below AGI. Georgia's HB 463 does provide its own temporary exclusion of up to $1,750 of cash tips for tax years 2026 through 2028. At Georgia's flat 4.99% rate, the state exclusion saves approximately $87 a year. Both provisions sunset after 2028.
At a glance
Key Facts
Federal OBBBA Tips Deduction: Up to $25,000
Qualifying tipped workers deduct up to $25,000 in tip income on the federal return (Schedule 1-A, below AGI). The deduction is reduced by $100 for each $1,000 of modified AGI above $150,000 (single) / $300,000 (MFJ). Georgia starts from federal AGI, which does not include the federal deduction, so the federal deduction does not by itself reduce Georgia taxable income; Georgia's own exclusion is described next. In the $77,000 example in this guide the federal saving is $4,050.
Georgia State Partial Exemption: Up to $1,750
Georgia (HB 463) allows an exclusion of up to $1,750 of cash tips for tax years 2026 through 2028, claimed on Form 500 as a Georgia subtraction from income; it is separate from the federal deduction. At Georgia's flat 4.99% income tax rate, the full $1,750 exemption saves approximately $87 in state income tax — in addition to the federal savings. The Georgia exemption also sunsets after the 2028 tax year.
Georgia Flat Tax Rate 2026: 4.99%
Georgia's flat income tax rate is 4.99% for 2026. A server earning $35,000 in tips owes Georgia income tax on $33,250 of tip income after the $1,750 Georgia exclusion: approximately $1,659 (4.99%). Without the exclusion the same worker would owe about $1,747 on the full $35,000, so the Georgia exclusion saves about $87. The federal deduction does not reduce the Georgia figure.
Worked Example: Atlanta Restaurant Server, 2026
Single filer, $42,000 wages + $35,000 tips = $77,000 total income. Federal (2026): taxable income falls from $60,900 to $35,900, cutting federal income tax from $8,110 to $4,060 — a saving of $4,050. Georgia: federal AGI stays at $77,000 and the Georgia exclusion of $1,750 of cash tips yields about $87 of Georgia savings. Total annual savings versus no deductions: approximately $4,137. FICA still applies to the full $35,000 in tips — approximately $2,678 in payroll tax.
FICA Still Applies — No Relief from Payroll Taxes
The OBBBA and Georgia exemptions reduce income taxes only. FICA applies to all tip income. On $35,000 in tips: Social Security = $2,170 (6.2%) + Medicare = $508 (1.45%) = $2,678 total FICA. This is unchanged by any tips deduction. Tips over $20/month must be reported to the employer (IRS Form 4070), who withholds FICA.
Introduction
Georgia's Double Benefit: Federal OBBBA Plus State Partial Exemption
Georgia tipped workers get two layers of relief in 2026. Georgia does not automatically pick up the federal OBBBA tips deduction (up to $25,000 of qualified tip income, claimed below federal AGI, which is Georgia's starting point), but Georgia enacted its own exclusion of up to $1,750 of cash tips (HB 463, tax years 2026 through 2028), claimed on Form 500. This guide explains how both deductions work, what Atlanta and Savannah workers actually save, and what happens when both provisions sunset in 2028.
Section 01
How to Claim the Federal Deduction and Georgia Exclusion
Filing as a Georgia tipped worker involves two separate steps: the federal deduction first, then the Georgia-specific exemption on Form 500.
Step 1: Federal Return
Claim the qualified tips deduction on Schedule 1-A of federal Form 1040 for up to $25,000 in tip income — whether you itemize or take the standard deduction. The deduction reduces federal taxable income, not AGI, and Georgia starts from federal AGI.
Step 2: Georgia Form 500
On Georgia Form 500, claim the Georgia exclusion of up to $1,750 of cash tips as a subtraction from income; this is the tips-specific reduction to Georgia taxable income. Confirm the current line for this exemption in the Form 500 instructions at dor.georgia.gov before filing.
Tips Must Be Properly Reported
Both exemptions require tips to be accurately reported. Tips over $20 per month must be reported to your employer via IRS Form 4070. Your W-2 Box 7 shows Social Security tips. Keep a daily tip log — date, shift, cash tips, credit card tips, tip-out paid — as documentation.
Section 02
Georgia vs Other States for Tipped Workers
Georgia's double-layer benefit puts it ahead of many states but behind no-income-tax states for overall take-home.
Georgia vs Florida and Texas
A Georgia server earning $35,000 in tips still owes approximately $1,659 in Georgia state income tax after the Georgia exclusion. The same server in Florida or Texas pays zero state income tax on tips. Annual gap: approximately $1,659.
Georgia vs Illinois
Illinois starts from federal AGI and we have not identified an Illinois tips exclusion — so Illinois workers get only federal savings, not state savings. Georgia workers also get the small state exclusion (up to $1,750). Georgia's exclusion is modest, but Illinois has none.
Georgia vs California
California does not conform to the OBBBA tips deduction at the state level. California workers pay up to 13.3% state tax on all tip income. Georgia workers pay 4.99% on tip income above the $1,750 exclusion. Georgia is significantly better than California.
Section 03
The 2028 Sunset: Planning for Expiration
Both the federal OBBBA tips deduction and the Georgia $1,750 state exemption expire after the 2028 tax year.
Impact of Expiration
If both provisions expire as scheduled, a Georgia server earning $35,000 in tips faces approximately $4,137 per year in additional tax beginning 2029 (about $4,050 federal in the $77,000 example plus about $87 Georgia). That is a step up in tax worth planning around now.
Extension Prospects
Congress can extend the federal deduction by passing new legislation before 2028. The Georgia legislature would need to separately act on the state exemption. Monitor Congress.gov and dor.georgia.gov for updates in 2027-2028.
Planning Advice
Maximize contributions to 401(k), IRA, and HSA accounts while the higher take-home pay is available. Do not lock the savings into recurring expenses that assume continuation past 2028.
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Does Georgia conform to the no tax on tips OBBBA deduction?
Not automatically. The federal OBBBA tips deduction (up to $25,000) is claimed below federal AGI, and Georgia starts from federal AGI, so it does not reduce Georgia taxable income by itself. Georgia did enact its own exclusion of up to $1,750 of cash tips (HB 463) for tax years 2026 through 2028, claimed on Form 500. Both the federal deduction and the Georgia exclusion expire after the 2028 tax year.
Q
How much does the Georgia $1,750 tips exemption save?
At Georgia's flat 4.99% income tax rate, the $1,750 exclusion saves approximately $87 in Georgia state income tax per year. This is in addition to the federal OBBBA savings (up to $5,500 per year if the whole deduction falls in the 22% bracket; $4,050 in the $77,000 example in this guide). Combined benefit in that example: approximately $4,137 per year.
Q
Do Georgia tipped workers still pay FICA on tips?
Yes. FICA (Social Security 6.2% + Medicare 1.45%) applies to all tip income regardless of the OBBBA deduction or Georgia exemption. On $35,000 in tips, FICA totals approximately $2,678. The deductions reduce income taxes only — FICA is unchanged.
Q
When does the Georgia tips exemption expire?
Both provisions expire after the 2028 tax year. Beginning in 2029, tip income would be fully taxable at both federal and Georgia rates unless extension legislation is passed. Monitor dor.georgia.gov and Congress.gov for updates.
Q
Do hotel workers and hair stylists qualify?
Yes. The Georgia exclusion covers cash tips received in an occupation that has a Treasury Tipped Occupation Code (the federal list) — for example food service, hotel, personal appearance and delivery roles; confirm your occupation on the list. Tips must be voluntary and properly reported to the employer.
Disclaimer:For informational purposes only. This is not tax advice. Consult a qualified tax professional for your specific situation. Verify current rates with the IRS and Georgia DOR before filing.