2024 Nebraska Tax & Incentive Legislative Update
Below we review some of the most significant tax and incentive changes passed by the Nebraska Legislature in 2024.
As many know from following media coverage, LB 388 represented the Governor’s plan (as amended through the Legislative process) to reduce property taxes by subjecting additional items to sales tax, taxing vaping products, raising taxes on cigarettes, and imposing a tax on digital advertising. LB 388 failed to pass on its Final Reading at the Legislature, but the Governor has stated that he may call for a Special Session to continue to discuss this topic.
Employees Working Remotely for a Nebraska Company
Beginning in 2025, LB 1023 amends Nebraska’s “Convenience of the Employer” rule. This rule had subjected, to Nebraska income tax, income earned by a nonresident individual who worked for Nebraska companies and whose service, except for the individual’s convenience, could have been performed in Nebraska.
LB 1023 amends this provision to state that such rule shall only apply if the individual is present in Nebraska, in connection with such business, trade or profession, for more than 7 days during a year. If a nonresident is taxed under the amended “Convenience of the Employer” rule, only compensation paid to the individual for services performed within Nebraska will be subject to tax.
Be aware that LB 1023 did not change the “Base of Operations” rule which is still present in Nebraska law. The “Base of Operations” rule states that income earned by a nonresident individual is Nebraska source income if some of the individual’s service is performed in Nebraska and the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in Nebraska.
Increased Immediate Deduction for New Business Assets
Beginning in 2026, taxpayers may receive a Nebraska income tax deduction (in excess of any federal deduction) for the cost of business assets that are qualified property or qualified improvement property as defined under section 168 of the Internal Revenue Code. This deduction is limited to 60% of the full cost of such expenditures in the tax year in which the property is placed in service. The remaining 40% could be depreciated over a five-year irrevocable term.
Deduction of Research and Development Expenses
Also beginning in 2026, taxpayers may elect to treat research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year in connection with the taxpayer’s trade or business as deductible expenses. Such deduction would be allowed only to the extent that such research or experimental expenditures have not already been deducted in determining federal income. If a taxpayer does not fully deduct the research or experimental expenditures in the taxable year in which the expenditures are paid or incurred, the taxpayer could elect to amortize the expenditures over a five-year irrevocable term.
Caretaker Tax Credit Act
This Act, passed as part of LB 937, allows family caregivers of those needing assistance to receive a nonrefundable tax credit for eligible expenses of fifty percent (50%) of those expenses, with a maximum credit amount of either two thousand or three thousand dollars, depending on the status of the family member, from their Nebraska income tax. The credit is capped at $1.5 million annually and has an income limitation of $100,000.
Good Life District Economic Development Act
This Act was meant as an overlay to the existing Good Life Transformational Projects Act, passed last year by the Legislature.
Under this Act, a City may establish a Good Life District Economic Development program if approved by voters in the City. If a City establishes a Good Life District Economic Development program, the City may issue bonds that would be used to pay for the financing of the development of the Good Life District in that City. To pay off those bonds, the City may establish an additional city sales tax, an occupation tax, or use a part of the City’s existing sales tax.
Relocation Incentive Act
Beginning in 2025, this Act creates incentives for both employers hiring people who move into Nebraska and new residents moving to Nebraska.
For employers, the Act creates a refundable income tax credit for employers who pay relocation expenses for a qualifying employee who moves to the State of Nebraska for the purpose of accepting a position of employment. The credit is equal to 50% of the relocation expenses and is limited to $5,000 per qualifying employee. An employee must make between $70,000 and $250,000 per year for the employer to qualify for the credit. The credit will be recaptured if the employee moves out of Nebraska within 2 years after the credit is claimed. In addition, total credits are capped at $5 million per year.
For employees, the Act allows new residents to make a one-time election, within 2 years of becoming a Nebraska resident, to exclude all Nebraska-sourced wage income from an employer if that employee makes between $70,000 and $250,000 per year. The employee must pay those taxes back to Nebraska if the employee moves out of Nebraska within 2 years after the exclusion is taken.
Amendments to Imagine Nebraska Act
LB 1023 amended the Imagine Nebraska Act to specifically allow a property tax exemption for business equipment used primarily for the capture and compression of carbon dioxide, such as at an ethanol plant. LB 1317 also amended the Imagine Nebraska Act to specifically allow property tax exemptions for business equipment used for the manufacturing of liquid fertilizer, other chemicals applied to agricultural crops and liquid additives for farm vehicle fuel.
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