Adjustments to state income, social security taxes adopted

Senators passed a bill March 27 that indexes state income tax brackets for inflation.

LB987, introduced by the Revenue Committee, adjusts for inflation the minimum and maximum dollar amounts for each individual income tax bracket. The changes will prevent a cost of living wage increase from bumping a taxpayer into the next higher tax bracket.

The bill also reduces the amount of Social Security benefits that are included in the federal adjusted gross income (AGI) for state income tax purposes. The adjustment applies to taxpayers with an AGI of $58,000 or less for married persons filing jointly and $43,000 or less for all other returns.

The reduction in state General Fund revenue is estimated to be:
• $8.3 million in fiscal year 2014-15;
• $24.9 million in FY2015-16;
• $37.3 million in FY2016-17; and
• $51.6 million in FY2017-18.

The bill incorporated provisions of LB75, introduced by Fremont Sen. Charlie Janssen, which allow an individual to make a one-time election to exclude a portion of his or her military retirement income from state income tax within two years of retirement. The individual can choose to exempt 40 percent of military retirement income for seven consecutive years or 15 percent for each year, beginning with the year he or she turns 67.

The exemption applies only to individuals retiring after Jan. 1, 2015.

Senators passed the bill on a 44-0 vote.