2022 Nebraska Legislative Changes

Phase out of the taxation of social security benefits (LB 873 – Operative for taxable years beginning on or after January 1, 2022)

LB 873 phases out the taxation of benefits received by taxpayers under the federal Social Security Act on the Nebraska individual income tax return.

For taxable years beginning on or after January 1, 2022, the federal adjusted gross income (federal AGI) is reduced by a percentage of the social security benefits that are received and included in federal AGI. The applicable percentage for each tax year is listed below:

• 40% for taxable years beginning on or after January 1, 2022, and before January 1, 2023;
• 60% for taxable years beginning on or after January 1, 2023, and before January 1, 2024;
• 80% for taxable years beginning on or after January 1, 2024; and before January 1, 2025;
• 100% for taxable years beginning on or after January 1, 2025.

For all taxable years beginning on or after January 1, 2022, and before January 1, 2025, taxpayers can claim either the percentage reduction enacted by LB 873 or the previously existing exemption for low-income recipients, whichever is greater. For tax year 2022, married filing jointly taxpayers with a federal AGI of $61,760 or less and taxpayers filing any other return with a federal AGI of $45,790 or less may continue to claim a reduction equal to 100% of the social security benefits included in their federal AGI. The income thresholds are indexed for inflation for later years.

Individual and fiduciary maximum income tax rate change  (LB 873 – Operative for taxable years beginning on or after January 1, 2023)

LB 873 reduces the maximum tax rate of 6.84% for the income tax imposed on individuals and fiduciaries for taxable years beginning on or after January 1, 2023. The maximum tax rate for each taxable year is listed below:

• 6.64% for taxable years beginning on or after January 1, 2023, and before January 1, 2024;
• 6.44% for taxable years beginning on or after January 1, 2024, and before January 1, 2025;
• 6.24% for taxable years beginning on or after January 1, 2025, and before January 1, 2026;
• 6.00% for taxable years beginning on or after January 1, 2026, and before January 1, 2027;
• 5.84% for taxable years beginning on or after January 1, 2027.

Corporate maximum income tax rate change (LB 873 – Operative for taxable years beginning on or after January 1, 2024)

LB 873 reduces the corporate tax rate imposed on Nebraska taxable income in excess of $100,000 for taxable years beginning on or after January 1, 2024. The applicate tax rate for each taxable year is listed below:

• 6.50% for taxable years beginning on or after January 1, 2024, and before January 1, 2025;
• 6.24% for taxable years beginning on or after January 1, 2025, and before January 1, 2026;
• 6.00% for taxable years beginning on or after January 1, 2026, and before January 1, 2027;
• 5.84% for taxable years beginning on or after January 1, 2027.

The corporate tax rate for the first $100,000 of Nebraska taxable income remains 5.58%.

Expansion of the property tax credit for property taxes paid (LB 873 – Operative July 21, 2022)

LB 873 expands the Nebraska Property Tax Incentive Act. The act amends the total amount of credits for property taxes paid in 2022 and 2023 and establishes an allowable growth percentage for future years. The amendments also provide a new refundable tax credit for any taxpayer who pays community college property taxes. The community college property taxes paid exclude any property taxes levied for (1) bonded indebtedness and (2) resulting from an override on property tax levies approved by the voters pursuant to Neb. Rev. Stat. § 77-3444.

The credit allowed to each taxpayer is equal to the credit percentage announced by the Nebraska Department of Revenue (DOR) multiplied by the amount of property taxes paid. A separate percentage applies to the school district and community college property taxes paid. The credit percentages are set so the total amount of credits for each taxable year equals the following amounts:

School District Property Taxes

Taxable Years Beginning on or Within                               Total Credit Amount

• 2022                                                                            $ 548,000,000
• 2023                                                                            $ 560,700,000
• 2024 and after                                                              total credits in the prior year plus the allowable growth percentage

The allowable growth percentage is the % in the total assessed value of all real property in the state from the prior year to the current year, capped at 5%.

Community College Property Taxes

Taxable Years Beginning on or Within                        Total Credit Amount

• 2022                                                                $     50 million
• 2023                                                                $     100 million
• 2024                                                                $      125 million
• 2025                                                                $     150 million
• 2026                                                                $     195 million
• 2027 and after                                                  total credits in prior year plus the allowable growth percentage

Nonrefundable income tax credit for employers paying wages to certain employees convicted of a felony. (LB 917 – Operative for taxable years beginning on or after January 1, 2023)

For taxable years beginning on or after January 1, 2023, LB 917 provides a nonrefundable credit for employers that employ an individual who has been convicted of a felony in Nebraska or any other state (eligible employee). The credit will equal 10% of the wages paid by the employer to the eligible employee during the taxable year except:

• The credit is allowed only on the wages paid during the first 12 months of the eligible employee’s employment with the employer, and
• The total credit with respect to one eligible employee cannot exceed $20,000.

The nonrefundable income tax credit may be claimed on corporate, individual, or fiduciary income tax returns. The credit cannot be claimed or distributed by an S-Corporation, partnership, or LLC filing as an S-corporation or partnership.

The employer must apply for the nonrefundable tax credit by submitting an application to the DOR. The application will include:

• The number of eligible employees employed by the employer during the taxable year;
• The amount of wages paid to each eligible employee during the taxable year; and
• Any other information to verify the employer’s eligibility for the credit.

The DOR will consider applications in the order received each year until the total amount of approved credits reaches $5 million. If the employer qualifies for the nonrefundable tax credit, the DOR will approve the application and certify the amount of the approved credit to the employer. 

Deduction relating to student loan repayment assistance under the Teach in Nebraska Today Act. (LB 1218 – Operative July 21, 2022)

LB 1218 creates the Teach in Nebraska Today Act (Act). The Act provides an income tax deduction from the federal AGI for any amount received by the individual as student loan repayment assistance under the Act, to the extent included in federal AGI.

The Act is administered by the Nebraska Department of Education. To receive student loan repayment assistance, the individual must be a resident of Nebraska and teaching full-time or have a contract to teach full-time in Nebraska at the time of application. Eligible applicants must submit applications to the Nebraska Department of Education before June 10, 2023, and no later than June 10 of each year thereafter. Loan repayment assistance is limited to $5,000 per year, per application, for no more than 5 years. The total amount of student loan repayment assistance awarded under the Act cannot exceed $5 million in any fiscal year.

Additional information may be found at education.ne.gov as it becomes available regarding eligibility and the application process.

Individual income tax deduction for health insurance premiums paid by retired law enforcement officers. (LB 1273 – Operative for taxable years beginning or after January 1, 2023)

LB 1273 provides an income tax deduction to federal AGI for the amount of health insurance premiums paid by a retired law enforcement officer to the extent the premiums were not previously deducted in determining the retiree’s federal AGI. The retiree must meet the following requirements to claim the deduction:

• The retired individual was employed full time as a certified law enforcement officer for at least 20 years, and
• The individual must be at least 60 years of age as of the end of the taxable year the deduction is claimed.

Changes to the Nebraska Educational Savings Plan Trust (LB 864 – Operative July 21, 2022)

LB 864 expands the definition of benefits in the Nebraska educational savings plan to include qualified education loan payments for the beneficiary or a sibling of the beneficiary, not to exceed $10,000 for all taxable years combined.

Qualified education loan payment means the payment of principal or interest on a qualified education loan as defined in 26 U.S.C. § 221(d), as such section existed on January 1, 2022, of the beneficiary or a sibling of the beneficiary as described in 26 U.S.C. § 152(d)(2)(B), as such section existed on January 1, 2022.

Expansion of the Nebraska Advantage Rural Redevelopment Act (LB 1261 – Operative April 20, 2022)

LB 1261 increased the annual cap for Livestock Modernization applications under the Nebraska Advantage Rural Development Act (Act) to $10 million for calendar year 2022 and each calendar year thereafter. For applications filed after April 20, 2022, the maximum allowable credit for a Livestock Modernization application increased from $150,000 to $500,000. The sunset date for new applications under the Act was extended to December 31, 2027.

Change Provisions of the Nebraska Urban Redevelopment Act (LB 1261 – Operative July 21, 2022)

LB 1261 clarifies that the Urban Redevelopment Act allows more than one location to be part of the same agreement. 

Creation of the Nebraska Higher Blend Tax Credit Act (LB 1261 – Operative July 21, 2022)

Beginning with tax year 2022, retail dealers who sell ethanol blends of gasoline of E-15 or higher from motor fuel pumps at retail may receive a refundable income tax credit. The credit is equal to $.05 for each gallon of E-15 and $.08 for each gallon of E-25, E-30, and E-85 sold at retail in Nebraska during the prior calendar year.  For calendar year 2022, the total credits are limited to $2 million dollars.  The annual limit for each calendar year thereafter will be calculated based on the prior calendar year credit limitation and the tax credits approved in the prior calendar year, not to exceed $4 million.

Retail dealers may distribute tax credits to their partners, members, shareholders, or beneficiaries in the same manner that income is distributed.  Tax credits may be used to offset an income tax, premium tax, or financial institution tax liability and any excess tax credits may be refunded or carried forward until fully utilized.  A complete application must be submitted for each calendar year a retail dealer would like to receive Nebraska higher blend tax credits. 

Applications will be considered by the DOR in the order they are received. DOR will begin accepting application on August 1, 2022. New applications will not be accepted after December 31, 2026.

Change Provisions of the Nebraska Advantage Act (LB1150 - Operative January 1, 2023)

LB 1150 amends the Nebraska Advantage Act to allow taxpayers with a Tier 2 Large Data Center project and a sequential Tier 5 Large Data Center project to receive a direct pay permit and utilize a sales tax exemption in the place of a direct refund of sales and use taxes for purchases made during the entitlement period. The exemption covers sales and use taxes, including local taxes, paid on purchases, including rentals, listed in Neb. Rev. Stat. § 77-5725(2)(a), except that the exemption for subdivisions 77-5725(2)(a)(iii), (iv), and (v) are for the actual materials purchased.

Within 60 days of the effective date of January 1, 2023, the taxpayer will be issued a direct payment permit under Neb. Rev. Stat. § 77-2705.01, unless the taxpayer has opted out of the requirement.

Taxpayers who have received the permit must pay and remit sales and use tax until they meet the required employment and investment levels. Once the taxpayer has met the required levels they receive the sales tax refund described in Neb. Rev. Stat. § 77-5725(2)(a). For any entitlement year in which the taxpayer is not at the required levels, they must report all sales and use taxes owed for the period on their tax return for the year.

Change Provisions of the ImagiNE Nebraska Act (LB 1150 – Operative Dates Indicated Below)

LB 1150 amends the ImagiNE Nebraska Act to:

• Provide that the base year is 2019 for calculating employment if the year of application is 2021 or 2022 and the applicant increased staffing in 2020 or 2021 in response to the COVID-19 pandemic (Operative July 21, 2022);
• Allow time spent by employees who perform services for the taxpayer at a qualified location and in their Nebraska residence to be considered as working at a qualified location for the services performed at the employee’s Nebraska residence under the ImagiNE Nebraska Act (Operative July 21, 2022);
• Require the applications to state that participating taxpayers provide: 1) the most recent tax valuation and levy rate for all qualified locations; 2) a program schedule of the job training activities related to credits used for job training payments; and 3) the city and state of residence of recruited employees related to credits used for talent recruitment payments (Operative July 21, 2022);
• Clarify that the time of investment for improvements to real estate is recognized on a percentage of completion basis (Operative April 20, 2022);
• Clarify the calculation of the withholding credit when the taxpayer uses an employee leasing company (Operative April 20, 2022); and
• Clarify that applications on the wait list will retain the same application date and base year as if they had been approved at the time of application (Operative April 20, 2022).

Miscellaneous Provisions of LB 1150 (Operative Dates Indicated Below)

LB 1150 also:

• Clarifies that Social Security numbers of employees of taxpayers are records that may be examined or make memoranda thereof by the DOR;
• Synchronizes all incentive program reports issued by the DOR to October 31^st each year. The reports will be presented to the Appropriations and Revenue Committees at a joint hearing on or before December 15^th of each even-numbered year, and all reporting will be on a fiscal year basis (Operative April 20, 2022); and
• Requires the DOR to notify municipalities of the metropolitan and primary classes by March 1 each year beginning in 2021 of the amounts of local option sales tax refunds owed by the municipalities under LB 775 and the Nebraska Advantage Act. Recovery of the refunds by the DOR will be in equal monthly installments beginning the following January 1 when the total of the refunds is more than $1 million (Operative January 1, 2023).

See the 2022 Property Assessment Legislative Summary.