Income tax cuts, child care tax credits approved

A proposal that will cut Nebraska’s top individual and corporate income tax rates to 3.99 percent by tax year 2027 received final approval from lawmakers May 25.

LB754, introduced by Elkhorn Sen. Lou Ann Linehan at the request of Gov. Jim Pillen, also incrementally will cut the rate on the third individual income tax bracket to 3.99 percent by the same year.

As amended, the bill also exempts 100 percent of Nebraskans’ Social Security income from state income tax beginning in tax year 2024 rather than 2025 and allows federal retirees to exclude the amounts received as annuities under the Federal Employees Retirement System or the Civil Service Retirement System from their federal adjusted gross income.

LB754 also includes provisions of LB318, introduced by Sen. Eliot Bostar of Lincoln, which authorizes the state Department of Revenue to approve up to $15 million each year in refundable income tax credits intended to help parents and legal guardians pay for child care.

The measure allows individuals, estates, trusts and corporations to apply for a nonrefundable state income tax credit of up to $100,000 for contributions they make to eligible child care programs. The department may approve $2.5 million in credits under the program each year.

Finally, LB754 increases the amount of tax credits available for qualifying child care providers and employees under the School Readiness Tax Credit Act from $5 million to $7.5 million annually.

The department estimates that the bill will reduce state general fund revenue by $3.3 billion from fiscal year 2023-24 to FY2028-29.

LB754 passed on a vote of 39-2 and takes effect immediately.