Nebraska Microenterprise Tax Credit

The Microenterprise Tax Credit is available to individuals who are actively engaged in the daily management and operation of a microenterprise. A microenterprise can be any industry or entity type located in Nebraska that has five or fewer full-time equivalents at the time a Microenterprise Tax Credit application is filed.

2021 Legislation resulted in changes to the Microenterprise Tax Credit.  The discussion below reflects the 2021 changes that are effective for applications filed on or after September 1, 2021.

APPLICANTS & RELATED PERSONS

Approved applicants are eligible for a refundable Nebraska income tax credit of up to 20% of the increase in investment and/or employment at the business compared to base year levels. The maximum credit allowed is $20,000 (applications filed prior to September 1, 2021, were subject to a $10,000 limit).

The $20,000 cap is a lifetime cap for the applicant and related persons.  Related persons include those defined under the Internal Revenue Code as a co-owner of the business, individuals, and businesses with more than 50% common ownership, and a parent and their minor son or daughter.

Individuals engaged in farm or livestock operations with a net worth of more than $500,000 or ineligible for the Microenterprise Tax Credit.

DETERMINING GROWTH

The base year for determining growth is the year before the application is filed. Investment growth is based on an increase in purchases over a two-year period compared with base year purchases. Eligible investments include purchases of depreciable assets, repairs and maintenance, advertising, legal and professional fees, and leases. 

Employment growth is based on the increase in compensation (including employer health insurance contributions) over a two-year period compared with base year compensation. Compensation paid in excess of 150% of the Nebraska average weekly wage ($1,380 per week for 2021 applications) is excluded from the employment growth calculation.

If you think the Microenterprise Tax Credit may apply to you, and you have experienced or expect to experience employment and/or investment increases over the next two years, you may want to consider filing a Microenterprise Tax Credit application. Under current law, 2032 is the last year that Microenterprise Tax Credit applications can be filed.

To learn more about the Microenterprise Tax Credit, contact Russ Smith at Lutz at 402-827-2312.