4 Key Components to Individual Income Taxes in Nebraska

Taxes are an inescapable aspect of our financial lives. In addition to federal tax laws, which the Internal Revenue Service monitors, there are also state laws that vary depending on where you live. This article will cover the highlights of Nebraska's tax code and how it can affect your tax liability.

1. Nebraska’s Individual Income Tax Rates

Nebraskans are subject to a progressive income tax system, meaning that tax rates increase as income levels rise. Income tax rates vary based on income level and filing status. As of the latest update, Nebraska has four tax brackets, with rates ranging from 2.46% to 6.84%. The tax brackets are as follows:

Nebraska Individual Tax Brackets for Tax Year 2023:

It is important to note that Governor Jim Pillen signed LB754 into law on May 31, 2023. This bill reduces the top individual and business income tax rates to 3.99% by Tax year 2027.

2. Deductions and Credits

Nebraska offers various deductions and credits to help reduce the tax burden for individuals. Understanding these deductions and credits can significantly impact an individual's tax liability. Here are some essential deductions and credits available to Nebraska taxpayers:

• Standard Deduction: Nebraska offers a standard deduction based on filing status. For tax year 2023, the standard deduction amounts are as follows:
  • Single/Married Filing Separately: $6,950
  • Married Filing Jointly/Qualifying Widow(er): $13,900
  • Head of Household: $10,450
• Itemized Deductions: Taxpayers can choose to itemize deductions, which may include expenses such as mortgage interest, state and local taxes, medical expenses, and charitable contributions.
• Child and Dependent Care Credit: Nebraska offers a credit for eligible child and dependent care expenses incurred by taxpayers who work or seek employment. The credit can help offset childcare costs, allowing eligible taxpayers to reduce their tax liability.
• Education Credits: Nebraska provides credits for qualified education expenses, such as the Nebraska Opportunity Credit, the Nebraska Education Savings Plan Trust Credit, and the Opportunity Scholarship Tax Credit. These credits aim to support taxpayers investing in education for themselves or their dependents.

3. Capital Gains Exclusion

Nebraska's Capital Gain Exclusion is a special provision that allows individuals to exclude a portion of their capital gains earned from selling stock in a qualified corporation from state taxation. Adopted in 1987 as part of the Employment and Investment Growth Act, this exclusion provides a tax benefit for those who have realized capital gains in the state.

4. Real Estate Property Tax

Property tax is another significant aspect of Nebraska's tax system. Nebraskans are subject to property taxes based on the assessed value of their real estate properties and business personal property.

Nebraska's real estate property tax is assessed on residential, commercial, and agricultural properties. Local governments, including counties, cities, and school districts, determine the tax rate. The assessed value of the property, multiplied by the applicable tax rate, determines the property tax liability. These real estate taxes have been reduced from 5 billion to 3.6 billion over the last few years.

Nebraska offers programs to help mitigate the impact of property taxes, including the Homestead Exemption Program, which provides property tax relief to eligible homeowners.

How Lutz’s State and Local Tax Services Can Help

Staying on top of the different regulations in each state can be overwhelming. Lutz’s State and Local Tax Department is one of the largest and most experienced groups of dedicated SALT professionals in the region. If you have questions, please contact us, and we would be happy to guide you through your specific tax requirements and ensure you are taking advantage of all available credits and incentives.