Lawmakers passed a bill April 7 that cuts individual and corporate income tax rates, speeds up the phaseout of state taxation of Social Security income and expands a program intended to offset the amount of property taxes used to fund education.
LB873, as introduced by Sen. Curt Friesen of Henderson, would have eliminated community colleges’ general fund levy authority. As amended, it includes several major tax proposals heard by the Revenue Committee this session.
The amended provisions of LB939, introduced by Elkhorn Sen. Lou Ann Linehan, will cut Nebraska’s top individual income tax rate in several steps from the current 6.84 percent to 5.84 percent by tax year 2027.
LB873 also includes the amended provisions of LB938, sponsored by Linehan, which continue the phased-in reduction of the state’s top corporate income tax rate approved by the Legislature last year. The bill will cut the rate from the current 7.5 percent to 5.84 percent by 2027.
Also included are the provisions of LB825, introduced by Sen. Brett Lindstrom of Omaha. His proposal will exempt all Social Security income from state income taxation, to the extent that it is included in federal adjusted gross income, by tax year 2025.
The bill also includes the provisions of LB723, introduced by Albion Sen. Tom Briese. The proposal is intended to ensure that a refundable state income tax credit does not fall below its current amount of $548 million. The credit, created in 2020 under the Nebraska Property Tax Incentive Act, is based on property taxes paid to schools.
Under LB873, the credit amount will increase to $560.7 million for tax year 2023 and then increase by an allowable growth percentage of up to 5 percent beginning in tax year 2024.
Finally, the bill creates a similar refundable tax credit under the Nebraska Property Tax Incentive Act based on the amount of property taxes paid to a community college.
For calendar year 2022, $50 million in credits are available. The total then will increase annually, reaching $195 million during taxable years that begin during calendar year 2026. After that, the total will increase by the allowable growth percentage.
The state Department of Revenue estimates that LB873 will reduce state general fund revenue by $115.5 million in fiscal year 2022-23 and $213.8 million in FY2023-24. When fully implemented in FY2027-28, it will reduce revenue by an estimated $948 million.
The bill passed on a vote of 43-0.