Nebraska, like many states, has built its income tax system around the federal tax code. As a result, federal tax changes automatically affect state tax liability.
The federal tax bill passed in December makes three major changes that would lead to higher state income taxes:
» Repeal of personal exemptions. The federal law eliminated personal exemptions for all members of a household, which means Nebraskans could no longer claim the state personal exemption credit. The credit is worth $132 per exemption for 2017 taxes.
» Change in inflation calculations. The federal law switched from using the traditional consumer price index to calculate inflation and went to a different index, which grows more slowly. Nebraska adjusts its income tax brackets, personal exemption credits and standard deductions for inflation.
» Increase in federal standard deduction. The federal law nearly doubles the federal standard deduction, which means many taxpayers will stop itemizing deductions. Taxpayers who use the standard deduction on federal taxes also must take the state standard deduction, even if they would be better off itemizing for state purposes.