Nebraska State Income Tax Changes: What Businesses and Individuals Need to Know

Nebraska’s state income tax system is always evolving. Recently, legislators enacted several changes to the state’s tax code to boost economic competitiveness and attract businesses to the Cornhusker State.

In this article, we break down several changes that could impact both businesses and individual taxpayers.

Personal Income Tax Updates

Here’s a look at recent state income tax changes impacting individual income taxes.

Lower Marginal Tax Rates

In 2023, Governor Jim Pillen signed LB 754 into law. Among other initiatives, this legislation aims to reduce the top individual tax rate to 3.99% by 2027.

For the 2024 tax year, the top individual income tax rate fell from 6.84% to 5.84%. For 2025, the top tax rate will drop to 5.20%.

Action item: Reassess your withholding amounts or estimated tax payments to avoid overpayment or underpayment penalties.

Elimination of Tax on Social Security Benefits

Another element of LB754 delivers full tax exemption for Social Security benefits one year earlier than planned.

LB 64, signed into law in 2021, planned to gradually eliminate state income taxes on Social Security Benefits. The new legislation makes this retirement income 100% exempt from state income taxes for the 2024 tax year.

Caregiver Tax Credit Act

LB 937 established a nonrefundable tax credit for family caregivers who provide care and support to an eligible family member beginning in 2025.

The tax credit is worth 50% of eligible expenses incurred by the family caregiver, with a maximum credit of $2,000 ($3,000 if the family member is a veteran or diagnosed with dementia).

Family members must apply for the tax credit with the Nebraska Department of Revenue (DOR) and include documentation of eligible expenditures. However, there is a $1.5 million cap on the credit each fiscal year, so the DOR will consider applications for the credit on a first-come, first-served basis.

Action item: If you provide care for an eligible family member in 2025, discuss the credit requirements with your tax advisor to determine whether you qualify and submit an application to the DOR as soon as possible.

Corporate Income Tax Adjustments

Here’s a look at recent state income tax changes impacting income taxes for businesses.

Phased Rate Reductions

LB 754 also includes a phased reduction of corporate income tax rates. For the 2024 tax year, the top corporate tax rate, which applies to income over $100,000, drops from 7.25% to 6.5%. In 2025, the top rate will drop to 6.25%

This reduction is part of the state’s effort to remain competitive with neighboring states like Iowa and Kansas.

Action item: Corporations should factor these rate reductions into financial projections for the year, as they could influence decisions on reinvestment, hiring, and long-term growth strategies.

Relocation Incentive Act

Starting in the 2025 tax year, employers that pay relocation expenses for qualified employees can receive a refundable credit equal to 50% of the relocation expenses, subject to a limit of $5,000 per employee. For the 2025 tax year, the eligible employee’s salary must be between $70,000 and $250,000 to qualify for the credit.

The tax credit can be used to offset income taxes, franchise taxes, or premium taxes.

Employers must apply with the DOR, and there is a calendar year credit limitation of $5 million.

Action item: Keep this credit in mind when recruiting talent from out-of-state, as it can offset the cost of paying a new hire’s relocation expenses.

Employees Working Remotely for a Nebraska Company

Starting in 2025, LB 1023 amends Nebraska’s “Convenience of the Employer” rule. This rule subjects income earned by a nonresident individual who works for a Nebraska company to Nebraska income tax if their services could have been performed in Nebraska, if not for the individual’s convenience.

The update amends this rule to state that it only applies if the employee is present in Nebraska in connection with the business, trade, or profession for more than seven days during the year.

Under the amended Convenience of the Employer rule, only compensation paid to nonresidents for services performed within Nebraska is subject to income taxes.

Action item: Keep in mind that LB 1023 did not change Nebraska’s “Base of Operations rule. This rule states that income earned by a nonresident is Nebraska’s source income if the service is performed in Nebraska and their base of operations is in Nebraska (or there is no base of operations).

Pass-Through Entity Taxation

Nebraska continues to offer the elective pass-through entity (PTE) tax, which allows qualifying entities to pay state income taxes at the entity level, bypassing the $10,000 federal state and local tax (SALT) deduction cap.

Action item: Owners of S corporations, partnerships, and limited liability companies (LLCs) treated as partnerships for federal income tax purposes should work with their tax advisors to evaluate whether electing the PTE tax could reduce their overall tax liability.

Plan Ahead with Percipio Business Advisors

Nebraska’s tax changes offer opportunities but also introduce complexities. Working with an experienced tax advisor can help ensure you’re leveraging all of the tax benefits and incentives available to you.

Whether you’re an individual, small business owner, or corporate executive, the team at Percipio Business Advisors can help you navigate these updates. Contact us today to develop a tax strategy tailored to your needs and position yourself for financial success in 2025 and beyond.

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