Georgia Estate and Inheritance Tax

Atlanta
••• Photography by Steve Kelley aka mudpig / Getty Images

While Georgia is not known to be one of the most tax-friendly states for retirees, Georgia is one of the majority of states that currently do not collect an estate tax at the state level. A few years ago, however, things were different before major changes took effect with regard to federal estate tax laws. What do federal estate tax laws have to do with Georgia estate taxes? Prior to January 1, 2005, Georgia actually did collect a separate estate tax at the state level, called a "pick up tax" or "sponge tax," that was equal to a portion of the overall federal estate tax bill.

The Pick Up (Sponge) Tax

The "pick up tax" or "sponge tax" is a state estate tax that is collected based on the credit that the IRS allowed on the federal estate tax return, IRS Form 706, prior to January 1, 2005. Each state had different tax laws with regard to the pick up tax, so the amount that a state would collect varied based on that state's own estate tax laws. In essence, however, the overall estate tax bill was not increased or decreased due to the pick up tax. Instead, the total tax bill was apportioned between the IRS and the state taxing authority.

So what does this mean in plain English? It means that a portion of the federal estate tax was actually taken away from the IRS and instead paid to the decedent's state taxing authority. As such, prior to January 1, 2005, if a deceased Georgia resident owed federal estate taxes, then the Georgia Department of Revenue collected the pick up tax from the deceased Georgia resident's estate.

Future of the Estate Tax

Effective January 1, 2005, the pick up tax was officially phased out under the provisions of the Economic Growth and Tax Relief Reconciliation Act ("EGTRRA"). In response to these changes in federal law that phased out the pick up tax, some states that used to collect a pick up tax chose to enact laws that allow the state to still collect a state estate tax. This is referred to as "decoupling" since the states that enacted a state estate tax no longer based their state estate tax laws on current federal estate tax laws.

The majority of states did absolutely nothing and therefore no longer collect a state estate tax, and Georgia was one of them. In addition, under the provisions of EGTRRA the pick up tax was supposed to return in 2011, but nonetheless, the Tax Relief Act of 2010 did not include reinstatement of the pick up tax, so don't count on Georgia levying its own separate state estate tax any time soon.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.