What’s new in Nebraska for 2026: the top rate falls to 4.55%, and the federal deductions that never arrive

The biggest change on the 2026 Nebraska return is arithmetic, not policy: the top rate, 5.20% last year, is 4.55% this year, and the third bracket that was 5.01% is 4.55% too, so there are effectively three rates instead of four. That is the second step of a cut the Legislature enacted in 2023 (LB 754), and the last step, to 3.99%, comes for 2027. Everything else is smaller. The standard deduction and brackets moved up with inflation. A refundable adoption credit appears on the form for the first time. Business owners get a Nebraska-only deduction on new Form 27242. And the federal tax law of July 2025, which rewrote the federal return, changed the Nebraska return almost not at all, because Nebraska starts from federal adjusted gross income and most of the new federal breaks are taken after that line.

The rate cut, year two

LB 754 of 2023 scheduled the top Nebraska rate to fall every year: 5.20% for 2025, 4.55% for 2026, 3.99% for 2027. The 2026 Tax Calculation Schedule the Department of Revenue posted in August shows the result. The two lowest rates, 2.46% and 3.51%, did not change. The third and fourth tiers, 5.01% and 5.20% last year, are both 4.55%, which is why the schedule prints four lines but a filer meets three rates. The Department lists the schedule on its 2026 Final Income Tax Forms page; the PDF still carries an August 17 draft stamp, so confirm against the final booklet (verify).

Joint filers reach the 4.55% rate at $49,530 of taxable income, heads of household at $39,620. For 2027 both upper tiers fall to 3.99%; the 2027 thresholds are to come. The withholding tables (Circular EN) were revised for the cut, so paychecks have been smaller on the Nebraska line all year and refunds will not show the full saving.

Put a number on it. A single filer with $50,000 of Nebraska taxable income paid $2,122 under the 2025 schedule and pays $1,974 under the 2026 one, a saving of $148. A couple with $100,000 of taxable income goes from $4,244 to $3,948, a saving of $296. The cut is worth more the higher the income, because only the upper rates moved.

The indexed figures

Nebraska indexes its standard deduction, its brackets and its personal exemption credit to inflation each year. The 2026 Form 1040N shows a standard deduction of $8,850 for single and married-filing-separately filers, $17,700 for joint filers and surviving spouses, and $12,950 for heads of household, up from $8,600, $17,200 and $12,600. The personal exemption credit on line 18 is $176 per person, up from $171. The additional standard deduction for each box checked for age 65 or blindness is in the instructions, not on the form; the 2025 amounts were $2,000 for single and head-of-household filers and $1,650 per box for married filers, and the 2026 amounts are to come (verify).

The federal law of July 2025: what reached Nebraska and what did not

Nebraska follows the Internal Revenue Code on a rolling basis: whatever the code says, Nebraska follows, unless the Legislature votes to break away. The Department’s September 2, 2025 report to the Legislature on the federal act sorted the provisions into two piles by one rule. Form 1040N starts from federal adjusted gross income. Anything that changes AGI changes Nebraska income automatically. Anything taken after AGI never reaches Nebraska, and there is nothing to add back because it was never taken out.

The Department put the cost of the flow-through provisions at about $102.5 million in the 2025–26 fiscal year, falling to $81.6 million by 2028–29, with the SALT cap and bonus depreciation the largest pieces. Tips, overtime and the senior deduction cost Nebraska nothing because they never left the base.

The Legislature had its chance to change the sorting and did not. LB 932, introduced by Senator John Cavanaugh in January 2026, would have created Nebraska deductions for tips and overtime matching the federal ones, at a cost the fiscal note put near $70 million over three years. The Revenue Committee heard it February 20, 2026, took no vote, and the bill was indefinitely postponed when the session ended April 17. LB 853, which would have kept Nebraska out of the new 100% deduction for production structures, met the same end the same day.

New on the 2026 form

Adoption credit, line 52. A refundable Nebraska credit equal to 10% of the federal adoption credit, for tax years beginning in 2026. The 2025 form had no such line; the 2026 draft does, and the Department’s federal-law report describes it. The enacting bill and any cap are to come (verify).

Form 27242 and the LB 1023 deduction. In 2024 the Legislature created a Nebraska deduction for business owners: 60% of the cost of qualified property or qualified improvement property placed in service after 2024, and all of a year’s research and experimental spending, taken at once or over five years. It applies only to cost not deducted federally in the year placed in service. With federal bonus depreciation back at 100%, most equipment gets nothing more here; the deduction matters for property federal law still depreciates over time, such as interior improvements to commercial buildings, and for anyone who elected out of bonus. The worksheet is new Form 27242 (draft dated August 31, 2026); the results go to Schedule I. 2026 is the first year, so there are no prior-year add-backs yet.

Form 2441N. The refundable child and dependent care credit for families with federal AGI of $29,000 or less rises with the federal credit; the federal decimal on the 2026 form runs from .50 down to .43 instead of .35. Above $29,000 the nonrefundable credit on line 23 is still 25% of the federal credit, which also grew.

Child Care Refundable Tax Credit. Unchanged: $2,000 per child age 5 or under if household income is $75,000 or less, $1,000 up to $150,000, applied for on Form 7203 through the Department’s eDASH portal and approved before it is claimed on line 48. The $15 million statewide cap goes by application date. Applications for tax year 2026 open in January 2027; the Department will post the date. If you have a child in licensed care, put that date on the calendar.

What did not change on the return, and the 2027 change already enacted

Social Security is still 100% subtracted on Schedule I at any income. Military retirement is still 100% excluded. Pensions, IRAs, 401(k)s and Roth conversions are still taxed in full. The Nebraska earned income credit is still 10% of the federal credit, refundable. The NEST 529 subtraction is still $10,000 per return. The school district property tax credit is still printed on the property tax statement under LB 34 of 2024, so Form PTC with the 1040N covers community college taxes only, as it did for 2025. The Opportunity Scholarships credit stays repealed, with line 30 left for carryforwards. The inheritance tax rates and exemptions did not move; the bill that would have cut them died in 2025 (verify).

One 2026 bill reaches the return a year from now. LB 998, approved April 14, 2026, extends the Nebraska National Guard income exclusion to Title 10 federal active duty for tax years beginning January 1, 2027. For 2026 the exclusion still covers Title 32 duty, dual-status technician pay and state active duty only.

The ballot

There was no tax question on Nebraska’s November 3, 2026 ballot. The “EPIC Option” constitutional amendment to abolish property, income and inheritance taxes did not qualify; its organizers announced in March 2026 that they were short of the signatures needed and would aim for 2028 instead. A separate initiative to limit property tax increases also failed to make the ballot. The four measures voters did see, on legislative term limits, sports betting and school sports, do not touch the income tax. Broader property tax reform was left for the 2027 session.