State personal exemption credit, standard deduction approved

Senators passed a bill April 11 intended to prevent a tax increase on Nebraskans as a result of recent changes to federal tax law.

Congress made several changes to the federal tax code in December with the Tax Cuts and Jobs Act. Papillion Sen. Jim Smith, sponsor of LB1090, has said that because Nebraska’s tax law is tied to the federal code in several places, automatic changes to the state’s tax code would generate more than $220 million in additional state revenue this year.

The repeal of the federal personal exemption effectively repealed Nebraska’s personal exemption credit, which is tied to the federal exemption. To offset this change, LB1090 creates a new $134 state personal exemption credit that individuals may claim for themselves and each of their dependents beginning in 2018.

Congress also made changes to itemized deductions, exemptions for capital expenditures and the federal standard deduction. To offset those changes, LB1090 establishes a Nebraska standard deduction of $6,750 for single taxpayers, $9,900 for head of household filers and $13,000 for those who are married filing jointly.

The bill also adjusts individual income tax brackets, the personal exemption credit and the standard deduction based on the Consumer Price Index for All Urban Consumers instead of the new federal indexing method.

The state Department of Revenue estimates that the bill will reduce state tax revenue by $326 million in fiscal year 2018-19 and a further $257 million in FY2019-20.

The bill passed on a vote of 44-0.