Through Legislative Bill 754 (Sections 1 through 5), Nebraska has introduced two significant tax credits, effective for taxable years beginning on or after January 1, 2024, designed to support child care accessibility and affordability. These credits provide opportunities for both families seeking child care assistance and individuals or organizations interested in supporting child care programs throughout the state.

Overview of Available Credits 

Nebraska now offers two distinct tax credits: 

1. A refundable tax credit for families with young children in child care.
2. A nonrefundable tax credit for contributions to child care programs. 

Understanding the difference between these credits is important. A refundable tax credit means you can receive the full amount even if it exceeds your tax liability. A nonrefundable tax credit can only reduce your tax liability to zero, with excess amounts potentially carried forward. 

The Child Care Refundable Tax Credit 

Who Qualifies? 

Eligibility for this credit requires meeting several specific criteria: 

• The child must be 5 years old or younger as of December 31 of the tax year.
• Total household income must not exceed $150,000.
• The child must be enrolled in a licensed child care program, or the family must meet alternative qualifying conditions. 

Foster parents may qualify if they claim the child as a dependent on their federal tax return and meet all other requirements. 

Credit Amount 

The credit value is determined by household income: 

• Households with income of $75,000 or less: $2,000 per qualifying child.
• Households with income between $75,001 and $150,000: $1,000 per qualifying child. 

As a refundable credit, eligible recipients may receive the full amount regardless of their tax liability. 

Application Process 

The application process requires several sequential steps: 

1. Submit Form 7203 through Nebraska's eDASH system.
2. Receive approval confirmation.
3. Include the approved credit on your Nebraska tax return. 

Applications can be submitted using estimated income figures prior to receiving final tax documents. 

The Child Care Nonrefundable Tax Credit 

Who Qualifies? 

This credit is available to: 

• Individual taxpayers
• Corporations
• Trusts and estates
• Partnerships and S corporations 

Qualification requires making eligible contributions to approved child care programs or initiatives. 

Credit Amount 

The credit value varies based on the contribution recipient: 

• Standard contributions receive a 75% credit.
• Contributions to programs in opportunity zones or those serving subsidized children qualify for a 100% credit.
• Contributions must be free of financial conflicts of interest and can include cash, securities, or agricultural commodities. 

The maximum annual credit is $100,000, with unused amounts eligible for a five-year carry-forward period. 

Application Process 

To claim this credit: 

1. Make a qualifying contribution.
2. Submit Forms CCTC-A and CCTC-R with appropriate documentation.
3. Allow approximately 90 days for application review.
4. Apply the approved credit to your Nebraska tax return. 

Important Considerations 

Program Limits: 

• The refundable credit is capped at $15 million annually, and the nonrefundable credit is limited to $2.5 million.
• Applications are processed on a first-come, first-served basis, so early submission is key. 

Special Notes for Families: 

• ITINs and Social Security numbers are both accepted.
• Qualified programs include licensed child care providers and eligible public school early childhood programs.
• For married couples filing separately, only one parent can claim the credit. 

These tax credits represent significant opportunities for supporting and accessing child care in Nebraska. Understanding the requirements and processes for each credit type can help ensure successful participation in these programs. If you would like assistance claiming these credits, our expert tax team is here to help. Contact us with questions.