Nebraska Pass-Through Entity Tax 2023 - 2024

Pass-through entities like partnerships and Subchapter S corporations do not pay Nebraska income taxes themselves. Instead, their income, deductions, and credits “pass through” to the individual owners, partners, or members, who then report them on their personal tax returns. During the 2023 legislative session, Nebraska passed a law known as PTET that allows pass-through entities to make a voluntary election to pay state and local income taxes directly out of their entity’s accounts. Then, those entities’ owners can claim a credit for the PTET payment on their individual income tax returns. The PTET election is retroactive for the 2018 through 2022 income years. This can be a very beneficial move for some entities, especially those that are negatively impacted by the 2017 federal SALT cap.

Who is Eligible for Nebraska Pass-through Entity Tax?

• Eligible partnerships include any entity treated as a partnership for federal income tax purposes, such as limited liability companies (LLCs). Publicly traded partnerships are not eligible.
• Eligible S corporations are any entities subject to taxation under subchapter S of the Internal Revenue Code (IRC) and related Treasury Regulations.

How Does Nebraska Pass-through Entity Tax Work?

• Eligible entities can make an annual election to be subject to the PTET.
• The PTET is calculated as 6.84% of the entity’s Nebraska income.
• The entity pays the PTET to the Nebraska Department of Revenue.
• The entity’s owners can then deduct the PTET paid on their federal income tax returns.

Additional resources:

Nebraska Department of Revenue PTET website: https://revenue.nebraska.gov/businesses/nebraska-pass-through-entity-tax-ptet

Nebraska PTET FAQs: https://revenue.nebraska.gov/about/frequently-asked-questions/pass-through-entity-tax-faqs

What’s New on Nebraska Pass-through Entity Tax

This is an extraordinary tax planning opportunity for Nebraska business owners that have reached the federal $10,000 limitation on state and local tax deductions. Unlike Colorado’s law, Nebraska’s will be retroactive and does not require amended returns to claim the benefits. The Department of Revenue has released forms for making the PTET election and has established a PTET-specific website to facilitate filings. The NDOR has published 36 Frequently Asked Questions (FAQs) for the PTET law that are also accessible on the PTET website.

Aside from the PTET, Nebraska businesses must also file quarterly income tax withholding deposits and annual sales and use tax returns. In addition, some counties and cities in Nebraska impose their own industry-related or local business taxes. For more information about these tax requirements, see the Department of Revenue’s guide on how to pay Nebraska business taxes.