LB754, recently passed by the Nebraska State Legislature, contains two potentially valuable tax credits for Nebraska families, including low-income families, beginning in 2024. To qualify for the credits, taxpayers must apply and be approved in advance of claiming the credits on their returns.
The first credit is available to any parent or guardian of a child five years old or younger (child credit). The child credit includes three tiers of eligibility as follows:
- A) The child is enrolled in a licensed childcare program, or
- B) The child receives care from an approved license-exempt provider enrolled in the childcare subsidy program, or
- C) The parent or guardian’s total household income is equal to, or less than, 100% of the federal poverty level.
The child credit is $2,000 per child if the parent or guardian’s household income (federal modified adjusted gross income) is $75,000 or less, or $1,000 per child if household income is between $75,000 and $150,000. The credit is fully refundable.
Taxpayers only need to be eligible under one of the tiers to qualify for the credit. If taxpayers happen to be eligible under multiple tiers of the credit, they can only receive a credit for one of the tiers. For example, if a parent or guardian’s household income is at or below 100% of the federal poverty level under (C) above, they are eligible for the child credit, regardless of whether their child is cared for by a licensed childcare program or license-exempt provider enrolled in the childcare subsidy program. If a parent or guardian’s household income exceeds 100% of the federal poverty level, then their child must be eligible under (A) or (B), above.
Applications for the child credit are considered in the order in which they are received and should include the following information:
- A) The number of children for which the credit is being claimed
- B) Documentation of the total household income
- C) Any other documentation required by the Nebraska Department of Revenue
LB754 limits approved credits to $15 million per year.
The second credit is available to any Nebraska taxpayer, whether a resident or non-resident, and whether an individual, estate, trust, or corporation which makes a contribution for one of the following purposes:
- A) To establish or operate an eligible program (licensed childcare home, childcare center, or preschool, whether a for-profit childcare business or a nonprofit organization under the Internal Revenue Code).
- B) To establish a grant or loan program for parents requiring financial assistance for an eligible program.
- C) To an early childhood collaborative or intermediary to provide training, technical assistance, or mentorship to childcare providers.
- D) To establish or fund the ongoing costs of an information dissemination program that assists parents with information and referral services for childcare.
- E) To a for-profit childcare business that uses the contribution for (i) the acquisition or improvement of childcare facilities, (ii) the acquisition of equipment, (iii) providing services, or (iv) employee retention.
- F) To an intermediary to establish or operate an eligible program or for the establishment of a grant or loan program for parents requiring financial assistance for an eligible program.
The credit for qualifying contributions is valued at 100% of the contribution if either the recipient is physically located in an opportunity zone or the recipient has at least one child enrolled in a childcare subsidy program and the provider is actively caring and billing for that child. If either of those are not met, the credit is 75% of the total qualifying contribution. Credits for qualifying contributions may not exceed $100,000 annually and may not also be claimed as a charitable deduction on the taxpayer’s federal income tax return. The credit is non-refundable, but allowable credits in excess of the taxpayer’s tax liability may be carried forward up to five years.
Applications for the contribution credit are considered in the order in which they are received. LB754 limits approved credits to $2.5 million per year.
The Nebraska Department of Revenue has not yet opened the application process but is permitted to do so at any time before January 1, 2024. Due to the application process and annual cap on the credits available, it is vital to identify, educate, and assist any families who may benefit from the new credits, so they don’t miss out on this opportunity. Please do not hesitate to reach out to your trusted HBE advisor with any questions or concerns.