Nebraska's LB1023, effective January 1, 2025, is set to bring significant changes to the state's tax landscape for businesses and employees. This comprehensive legislation is designed to attract new residents, support remote workers, and provide economic incentives for companies to invest and create jobs in the state. Below are the key takeaways from this new legislation.

Relocation Tax Incentives

One of the most exciting aspects of LB1023 is the introduction of relocation tax incentives for both employers and employees.

Employers

Employers can claim a tax credit of 50% of the relocation expenses paid for a qualifying employee, up to $5,000 per employee per tax year. To qualify, the employee must receive an annual salary between $70,000 and $250,000 (indexed for inflation from 2026).

Employees

Employees also benefit from a one-time election to exclude Nebraska-sourced wages from their state income tax, provided they meet the same salary requirements and were not a Nebraska resident in the year prior to claiming residency. This provision aims to attract skilled workers to the state.

Decoupling from Federal R&D Capitalization Requirements

Starting January 1, 2026, Nebraska will allow businesses to fully deduct R&D expenses in the year they are incurred, departing from the federal requirement to capitalize and amortize these expenses over several years. This change provides a more immediate tax benefit for investing in innovation and reduces the financial burden on companies engaged in R&D activities.

Withholding Changes for Convenience Rule

LB1023 also brings noteworthy adjustments to the state’s withholding tax requirements, particularly the "convenience of the employer" rule. Previously, nonresident employees working remotely for Nebraska employers were subject to Nebraska income tax withholding, regardless of their physical location. The new law establishes a seven-day physical presence threshold, meaning nonresident employees must spend at least seven days working in Nebraska before their income is subject to state withholding. This change simplifies tax compliance for businesses and reduces the administrative duties associated with remote work taxation.

What This Means for Nebraska Businesses

These updates reflect Nebraska’s commitment to creating a favorable business environment. The relocation credit and changes in R&D expense deductions position Nebraska as a competitive destination for both new residents and innovative companies. Meanwhile, the updated withholding rules for remote workers align with the modern, flexible work arrangements increasingly favored by employers and employees.

Lutz Simplifies State and Local Tax Compliance

Staying on top of the different regulations in each state can be overwhelming. Lutz’s State and Local Tax Department is one of the largest and most experienced groups of dedicated SALT professionals in the region. If you have questions about the implications of these changes in your business, please contact us.