Nebraska enacts corporate and personal income tax rate cuts

TAX ALERT | April 15, 2022

Authored by RSM US LLP

On April 13, 2022, Nebraska Gov. Pete Ricketts signed Legislative Bill 873, continuing and expanding on last year’s corporate income tax cuts, by including a reduction of the top personal income tax rate over the next five years and a reduction of the corporate income tax rate over an additional four years. A summary of the rate changes follows below.

Personal income tax changes

The top marginal personal income tax rate will be reduced as follows:

For single filers, the top bracket begins with incomes of $29,000 and over, and for married filing jointly, at $58,000 and over.

Personal income taxpayers may also claim an additional exclusion (doubling the original scheduled phase-in of a 50% exclusion) for social security benefits as follows: 40% for tax years beginning on Jan. 1, 2022, 60% for tax years beginning on Jan. 1, 2023, 80% for tax years beginning on Jan. 1, 2024 and 100% for tax years beginning on and after Jan. 1, 2025.

Finally, the new legislation expands the existing income tax credit for certain school property taxes by increasing the total credit amount for 2022 to $548,000,000, for 2023 to $560,700,000, and for years after, the amount of credits allowed in the prior year increased by the allowable growth percentage.

Corporate income tax rate reductions

The current law is phasing in a reduction of the corporate income tax rate on income over $100,000. The rate for 2022 is 7.5% and scheduled as 7.25% in 2023. The first $100,000 is taxed at a rate of 5.58%. The legislation provides further reductions on income over $100,000 as follows: 6.5% for tax years beginning on or after Jan. 1, 2024, 6.24% for tax years beginning on or after Jan. 1, 2025, 6% for tax years beginning on or after Jan. 1, 2026 and 5.84% for tax years beginning on or after Jan. 1, 2027.

Takeaways

The further reductions of both personal and corporate income tax rates fulfill a promise by the governor and the legislature to revisit such reductions this year. The unicameral legislature passed the tax cuts without any votes against the legislation. The total projected impact to general funds revenues is estimated to be about $948 million by fiscal year 2027-2028. Nebraska joins a number of states in 2022 and 2021 that have continued to consider both corporate and personal income tax reductions. For questions about the tax cuts or doing business in the state, please contact a Nebraska state and local tax adviser.