Georgia conforms to the OBBBA federal tips deduction (up to $25,000) AND adds a state partial exemption of $1,750. At Georgia's flat 5.39% rate, the state exemption saves approximately $94/year extra. Both provisions sunset after 2028.
At a glance
Key Facts
Federal OBBBA Tips Deduction: Up to $25,000
Georgia conforms to the federal OBBBA tips deduction for tax year 2025. Qualifying tipped workers deduct up to $25,000 in tip income from federal AGI. Phase-out starts at $150,000 AGI (single) / $300,000 (MFJ). Because Georgia starts from federal AGI, the federal deduction reduces Georgia taxable income as well. A worker in the 22% federal bracket claiming the full $25,000 saves approximately $5,500 in federal income tax.
Georgia State Partial Exemption: Up to $1,750
Georgia enacted a separate $1,750 state-level tip income exemption claimed on Form 500 as a Georgia subtraction from income. At Georgia's flat 5.39% income tax rate, the full $1,750 exemption saves approximately $94 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: 5.39%
Georgia's flat income tax rate is 5.39% for 2026. A server earning $35,000 in tips, after the $25,000 federal deduction and $1,750 Georgia exemption, owes Georgia income tax on $8,250 of remaining tip income: approximately $445. Before the OBBBA, the same worker owed Georgia tax on the full $35,000 — approximately $1,887. Combined annual Georgia state tax savings from both deductions: approximately $1,442.
Worked Example: Atlanta Restaurant Server, 2026
Single filer, $42,000 wages + $35,000 tips = $77,000 total income. Federal: $25,000 tips deduction yields $5,500 federal savings (22% bracket). Georgia: federal AGI already reduced by $25,000, then additional $1,750 Georgia exemption yields $94 Georgia savings. Total annual savings vs pre-OBBBA: approximately $5,594. 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 conforms to the federal OBBBA tips deduction — allowing workers to deduct up to $25,000 in qualified tip income from federal AGI — and Georgia enacted its own additional $1,750 state exemption 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 Both Deductions on Your Georgia Return
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 federal Form 1040 for up to $25,000 in tip income — above-the-line, whether you itemize or take the standard deduction. The deduction reduces federal AGI, and Georgia starts from that reduced figure.
Step 2: Georgia Form 500
On Georgia Form 500, claim the additional $1,750 Georgia tip income exemption as a subtraction from income. This further reduces Georgia taxable income beyond the federal deduction. 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 $445 in Georgia state income tax after both deductions. The same server in Florida or Texas pays zero state income tax on tips. Annual gap: approximately $445.
Georgia vs Illinois
Illinois requires workers to add back the federal OBBBA deduction on the Illinois state return — so Illinois workers get only federal savings, not state savings. Georgia workers get both. Georgia is strictly better than Illinois for tipped workers.
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 5.39% only on tip income above the combined deduction thresholds. 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 $6,942 per year in additional tax beginning 2029 (combined federal and state). This is a significant cliff 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.
💡
CountryTaxCalc.com is reader-supported. When you use our partner links, we may earn a commission at no cost to you. This helps us provide free tax calculators and comparison tools. Learn more about our affiliate partnerships
Talk to a Real CPA
Taxhub
★ 4.8 verified reviews · 3,758 reviews
Moving between states means a complex multi-state tax return. Taxhub matches you with a real CPA via video call — average cost $325. Rated 4.8★ by 3,700+ clients.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Does Georgia conform to the no tax on tips OBBBA deduction?
Yes. Georgia conforms to the federal OBBBA tips deduction, allowing up to $25,000 in tip income to be deducted from federal AGI. Since Georgia starts from federal AGI, this also reduces Georgia taxable income. Georgia also enacted a separate $1,750 state tip exemption on Form 500. Both provisions expire after the 2028 tax year.
Q
How much does the Georgia $1,750 tips exemption save?
At Georgia's flat 5.39% income tax rate, the $1,750 exemption saves approximately $94 in Georgia state income tax per year. This is in addition to the federal OBBBA savings of up to $5,500 per year. Combined benefit for most Georgia tipped workers: approximately $5,500-$5,600 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 tips exemption covers any occupation where tipping is customary — hotel workers, hair stylists, barbers, nail technicians, delivery drivers, valet attendants, and food service workers. 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.