‘A missing year’: No income tax credits for Nebraskans to offset school property taxes paid in 2024

State Sens. Justin Wayne of Omaha, Steve Erdman of Bayard, Lou Ann Linehan of Elkhorn and Brad von Gillern of Elkhorn, from left. (Photos by Zach Wendling/Nebraska Examiner)

LINCOLN — Nebraska’s refundable income tax credit program for K-12 school property taxes is officially off the books, and new revisions will close the door for most taxpayers to get such relief on taxes paid in 2024.

Legislative Bill 34 , passed 40-3 at the end of the Legislature’s summer special session on property taxes last month, revised the existing tax credit program first established in 2020 by LB 1107 . The earlier process required taxpayers to apply for an income tax deduction the year after paying their property taxes. Tax statements are sent to taxpayers each December and are typically paid in two installments over the following year.

Now, the LB 34 credit will appear first on that property tax statement. While the changes make the process of returning funds to taxpayers upfront and automatic, some officials have discovered what they say will hurt some taxpayers because of the legislation.

​​“It is a retroactive property tax increase for ‘23 [assessed taxes],” State Sen. Steve Erdman of Bayard told the Nebraska Examiner.

Erdman, one of three senators to oppose LB 34, said his opposition was vindicated when he discovered that the expedited process skips over providing a credit for taxes paid in 2024, moving straight to the 2025 cycle.

“You can go on forever and never make up that loss,” Erdman said. “The question I have is, ‘Whose money is it?’ It’s the people’s money.”

LB 34 increased the funds allocated for the tax credit program to $750 million, an increase of $185 million over the amount previously budgeted for the income tax credit. That leaves at least $565 million that could have gone to taxpayers on their 2025 tax returns but now won’t, Erdman said. The difference will be paid when taxpayers file their returns in April 2025.

‘No net difference’

Elkhorn State Sens. Lou Ann Linehan and Brad von Gillern, the chair and vice chair of the Legislature’s Revenue Committee, defended LB 34 as getting needed relief to more taxpayers through more advantageous timing. They said the state didn’t have enough funds for what would have been duplicate tax credits.

About 45% of Nebraskans hadn’t been claiming the LB 1107 refundable credits, according to the Nebraska Department of Revenue.

“LB 34 provides equitable property tax relief to all Nebraskans,” the department said in a statement. “It is critical that Nebraskans automatically receive this credit rather than loaning government funds for a full year.”

Linehan and von Gillern said the cash flow to taxpayers will be improved because relief still comes in 2025, but at the direct point that taxpayers are paying, rather than a year later. von Gillern said there will be “no net difference.”

“There’s no panic about people not getting their credit, that’s all I can say really,” von Gillern said Friday. “I’ve looked at this thing forwards and backwards trying to find a problem, and the problem that Senator Erdman is talking about is not a problem.”

Credit timing changes

Before, in LB 1107 (2020)

• December 2019 assessed taxes paid in 2020, with income tax credits available in 2021.
• December 2020 assessed taxes paid in 2021, with income tax credits available in 2022.
• December 2021 assessed taxes paid in 2022, with income tax credits available in 2023.
• December 2022 assessed taxes paid in 2023, with income tax credits available in 2024.
• December 2023 assessed taxes paid in 2024, with income tax credits available in 2025.

After, in LB 34 (2024)

• December 2023 assessed taxes, with no tax credits available (unless the taxes were paid by Dec. 31, 2023).
• December 2024 assessed taxes, with discount automatically applied upon payment, typically in 2025.
• December 2025 assessed taxes, with discount automatically applied upon payment, typically in 2026.

Linehan added the state had “only one $750 million,” which was paid for in part through state budget cuts and cash transfers .

“People are calling it ‘a skipped year.’ You can’t get a credit and pay less, too,” Linehan said. “You could, but that would cost $1.5 billion.”

Gov. Jim Pillen’s office declined to comment for this story.

‘Retroactive property tax increase’

Erdman was joined by State Sen. Justin Wayne of Omaha and organizations representing county officials and certified public accountants in arguing that the “missing year” will never be made up.

Taxpayers who had been claiming the credit “would have been far better off if we didn’t have a special session,” Erdman said.

“This is backwards. To say that over time we’re going to make up the loss of your credit for ‘23 is not telling the truth,” Erdman said. “It’s an increase in property tax for ‘23. Plain and simple retroactive property tax increase.”

Linehan had tried to usher through greater relief on behalf of Pillen . She initially introduced LB 1 during the special session. It was projected to increase total property tax relief up to 50%, largely through imposing new sales taxes on more than 100 currently exempt goods and services.

Erdman also reintroduced his “ EPIC Option ” proposals, which would eliminate property, income and corporate taxes in favor of a consumption and excise tax base.

But both approaches were quickly swatted down during the session.

‘We were actually hurting people’

Wayne, Erdman, Linehan and 12 other senators wanted to pause the session until after the November election, contending that more options needed to be considered to provide more relief. But 29 of their colleagues disagreed, voting to end the session after 17 days.

Erdman said that had senators listened to the appeal, the Legislature could have provided “meaningful” relief and “we wouldn’t be in this position.”

“We jammed it through, and now we have the result that we have,” Erdman said.

Wayne has said the session “could have been an email” based on how it ended. He said there were other revenue options, such as legalizing and taxing online sports betting or recreational marijuana. Both proposals were offered during the session but were not debated.

Erdman said the unused credits from years past should have been used to pay for both the “front-loaded” credit and one more year of the income tax credits.

Wayne directed criticism over the session’s “failure” at many people, including state senators of all political stripes who are running this year for the Legislature or Congress and who supported LB 34. Wayne said they “voted for a property tax increase, and there’s no way around it.”

“They either didn’t read the bill or they knew what they were doing, and I think that’s a huge problem,” Wayne said. “It was a rush to get something done and do something mediocre, and we were actually hurting people in the process.”

Counties, accountants brace for impact

Jon Cannon, executive director of the Nebraska Association of County Officials, said county officials are particularly sensitive to property tax concerns, since they oversee property valuations, budget requests and tax statements.

“We are the whole process, and we get all the complaints,” Cannon said. “We have a vested interest in property tax relief or reform being delivered to our taxpayers. If there’s a missing year or if there’s something that’s going to affect our taxpayers, we’re going to hear about it.”

Asked whether local governments could make up the funds through cuts, Cannon said there isn’t $600 million sitting around that officials “could just go ahead and set on fire.”

“That’s $600 million of roads and bridges for our part of the property tax ask,” Cannon said. “That $600 million is paying for something that we think is a public good.”

Bryan Klintworth, chair-elect of the Nebraska Society of Certified Public Accountants, said some taxpayers will see a tax credit for the taxes assessed in 2023 if they paid their taxes by Dec. 31, 2023. If so, they could have claimed the credit when filing their tax returns in 2024.

“That’s where there’s this kind of weird dichotomy,” Klintworth said.

Erdman said people will notice when they file their income taxes next year and will ask why the credit isn’t available. He says that is when it will “hit the fan.”

Cannon and Klintworth said the issue might be argued by some as “semantics” but that the end result is a lost year or “missing year” of tax relief.

“Even though you come out the same in the calendar year, it does affect the timing of it, too, in those installment payments,” Klintworth said, such as in monthly mortgage escrow accounts.

A ‘sleight of hand’

Erdman said he is disappointed that state leaders won’t own up to “confiscating” taxpayer dollars. He said he first thought it was an unintentional result but now sees it as an intentional “sleight of hand.”

He pointed to a “ comparative analysis ” from the Revenue Department that outlines the credit timing under LB 1107 as “property taxes paid” and LB 34 as “property taxes assessed.”

The explainer leaves out “2023 property taxes assessed” in December 2023 statements.

“Don’t look at what I’m doing here, look over here at this,” Erdman said.

Wayne said middle class and working class taxpayers, as well as anyone who has a mortgage and pays in installments, will be the ones sorting through an immediate tax increase in exchange for a potential decrease in future years.

“We can say none of it matters, but it does matter to those who are struggling right now with increased property taxes to pay to stay in their home,” Wayne said.

Erdman and Wayne said the $185 million in new tax relief, which amounts to about 3.5% of the $5.3 billion in property taxes paid in 2023, will also be eaten away by inflation or general increases in property taxes before tangible benefits of LB 34 are realized.

‘You take what you can get’

State Treasurer Tom Briese, a former state senator from Albion, joined Pillen, Linehan and von Gillern in celebrating LB 34 and for amending LB 1107, which Briese and Linehan championed in 2020. Briese said “one of the biggest stumbling blocks” in property tax relief consistently is finding new revenue streams to replace the local tax burdens.

“You have many folks on the left unwilling to do that, and you have a slice of folks on the far right unwilling to do that,” Briese said. “But those of us that are serious about property tax relief, serious about solving the property tax issue, are willing to do that.”

Briese said he is still optimistic lawmakers can find a long-term solution to property tax relief.

“I guess in this business you take what you can get, and that’s what the Legislature did,” Briese said. “I commend the Legislature for that.”

‘Bring it in January’

Erdman said he’s not sure the Legislature will have the “intestinal fortitude” to bring an amendment in January to correct the issues he has raised. He sees two fixes: Let Nebraskans collect the credit when they file their tax returns in 2025 or double the credit for one year.

“The Legislature and the governor had planned for this to be a decrease in property tax when in reality it’s actually an increase,” Erdman said. “We have to have an increase so we can give you a decrease. Think about that. We have to increase your taxes so we can give you a decrease for next year. How strange is that? Yeah, that’s crazy.”

State Sen. Julie Slama of Dunbar said the first bill introduced in 2025 should come at Pillen’s request and distribute the relief for 2024 taxes paid. She said funding should be through existing state resources, not other increased taxes.

“This is either malicious incompetence from the Pillen administration at best, or straight-up malicious at worst,” Slama said in a text message.

Erdman, Wayne, Linehan and State Sen. Steve Halloran of Hastings, the third lawmaker to oppose LB 34, won’t return next year due to term limits . Slama declined to seek reelection.

Von Gillern, who is in his second year as a lawmaker, will return and confirmed there is nothing to prevent senators from introducing legislation in January if they see any issues with LB 34, but they’ll need to find the funding.

“Bring it in January if you want to do it,” von Gillern said, “along with the fiscal note.”

LB 1107 credits claimed over time

• For taxes paid in 2020 — $82 million in tax credits claimed out of $125 million appropriated for school taxes (66%).
• For taxes paid in 2021 — $422 million in tax credits claimed out of $548 million appropriated for school taxes (77%).
• For taxes paid in 2022 — $562 million tax credits claimed out of $763 million possible for school and community college taxes (74%); $598 million appropriated.
• For taxes paid in 2023 (through July 2024) — $477 million tax credits claimed out of $809 million possible credits for school and community college taxes (60%); $660 million appropriated.

Taxpayers in Douglas, Lancaster and Sarpy Counties pay half of their property taxes by April 1 and the rest by Aug. 1; all other taxpayers pay by May 1 and Sept. 1. Some taxpayers choose to pay by Dec. 31 as soon as they receive their statements, changing when the credit is available. Tax returns are usually due by April 15.

More tax credits were available for taxes paid in 2022 and 2023 than legislatively appropriated. That’s because the Nebraska Department of Revenue increased the credit percentage in an attempt to repurpose previously unused credits.

Source: Patrick Roy, legislative and media coordinator, Nebraska Department of Revenue

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