Nebraska Tax Law Changes Resulting from the
American Recovery and Reinvestment Act (ARRA) of 2009
3/19/2009
The ARRA includes various federal tax law changes aimed at providing tax relief to individuals and businesses and to promote private investment. These federal tax law changes, to the extent a state’s tax code is “coupled” with the federal tax code, may affect state taxes. The significant ARRA provisions affecting Nebraska tax law are summarized below. For more information on federal taxes, visit the IRS Recovery Page.
INDIVIDUAL - Increase in the Federal Earned Income Tax Credit (EITC) for 2009 and 2010
This will increase the federal tax credit for larger families and married couples. The maximum credit can increase by as much as $600.
Direct Nebraska Impact:
Nebraska’s EITC will follow any increase in the federal EITC.
Example:
A taxpayer completes his/her federal return and calculates a $440 federal EITC. On the Nebraska return, he/she will calculate the state EITC as follows: $440 x 10% = $44.
INDIVIDUAL – Increased deduction for sales tax paid on new vehicles
An additional itemized deduction, or an enhanced federal standard deduction, is provided for state and local sales tax paid on the purchase of new cars, along with light trucks, recreational vehicles, and motorcycles not weighing more than 8,500 pounds. Purchases on or after February 17, 2009 through December 31, 2009 qualify. Used vehicle purchases do not qualify.
The deduction is limited to the state and local sales tax on up to $49,500 of the purchase price of an eligible motor vehicle. The deduction is reduced for married, filing jointly taxpayers with modified adjusted gross income (AGI) between $250,000 and $260,000; and for other taxpayers with modified AGI between $125,000 and $135,000.
Direct Nebraska Impact:
The sales tax on any new vehicle purchase must be paid to the county treasurer when the vehicle is licensed. Nebraska taxpayers that itemize deductions will see a reduction in Nebraska income taxes. Taxpayers that use the Nebraska standard deduction will not see a reduction in Nebraska income taxes.
INDIVIDUAL - Exemption from tax of the first $2,400 of unemployment benefits received in 2009
The first $2,400 of unemployment benefits received during 2009 will be exempt from federal income tax. Unemployment benefits have been fully taxable as part of federal AGI since 1987.
Direct Nebraska Impact:
Nebraska taxpayers receiving unemployment benefits in 2009 will also see a state income tax reduction. This will be seen as a reduction from AGI in tax year 2009.
INDIVIDUAL - Alternative Minimum Tax (AMT) patch for tax year 2009
This will continue to allow many middle-income taxpayers to avoid paying the federal AMT by extending certain credits and increasing the AMT exemption.
Direct Nebraska Impact:
Nebraska law will follow the increased AMT exemption.
BUSINESS - Extension of 50% bonus depreciation for 2009
This provision allows businesses to depreciate the cost of assets faster than under the regular depreciation schedule.
Direct Nebraska Impact:
This reduces a business’s federal taxable income. Nebraska law also follows this provision.
BUSINESS - Extension of enhanced small business expensing (IRC Sec. 179)
This increases the federal Sec. 179 deduction for tax year 2009 from $125,000 to $250,000. This allows small business taxpayers to write off less expensive, acquired assets in the year of purchase rather than over several years through depreciation.
Direct Nebraska Impact:
This reduces a business’s federal taxable income. Nebraska law also follows this provision.
BUSINESS - Delayed recognition of cancellation of debt income
When a business repurchases or restructures its existing debt for a lesser amount than originally contracted, it owes income tax on the cancelled debt amount. This provision allows businesses to defer reporting any such income for tax years 2009 and 2010, and instead, pay the tax over a ten-year period.
Direct Nebraska Impact:
Affected taxpayers will see a decrease in taxable income and a corresponding reduction in Nebraska tax in 2009 and 2010. Instead, the tax will be paid over a ten-year period. Nebraska law also follows this provision.
BUSINESS - Expanded carryback period for net operating losses (NOLs) of certain small businesses
This will allow certain business taxpayers, including sole proprietors, to elect extension of the current maximum two-year NOL carryback period to either three, four, or five years. This irrevocable election only applies to small businesses with average three-year gross receipts of $15 million or less.
Direct Nebraska Impact:
Nebraska law will follow this expanded carryback election provision for businesses owned by individual taxpayers. However, Nebraska will not follow this provision for corporately-owned businesses, since Nebraska law specifically restricts corporate NOLs to only a five-year carryforward period (no carrybacks allowed).
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