Nebraska lawmakers changed income tax laws this year to let some workers keep more of their salaries instead of waiting to get that money back in larger refunds.
JOANNE YOUNG/ Lincoln Journal Star | Posted: Sunday, December 9, 2007 6:00 pm
Nebraska lawmakers changed income tax laws this year to let some workers keep more of their salaries instead of waiting to get that money back in larger refunds.
Others, however, will have more money deducted from paychecks to ensure the state gets its due.
The laws take effect Jan. 1 and will require some attention to paperwork, state officials say.
Nebraska residents filed nearly 786,000 tax returns for 2006, and most of them – 569,000 – got refunds averaging $472.
Nearly 794,000 returns are expected to be filed for 2007, with nearly 598,000 refunds averaging $531. In 2005, individual taxpayers got refunds totaling $225 million.
The new laws decrease withholding rates and broaden withholding brackets. They eliminate the top withholding bracket of 7.18 percent and increase each withholding allowance from $1,530 to $1,700.
Overall, the changes will mean $100 million less in withholding coming to the state. That doesn’t equate to lesser taxes.
The purpose of withholding is to closely approximate an employee’s tax liability so the employee ends up not having to send a check with his or her tax return. Often, a little extra money is collected, and that gets returned to the taxpayer as a refund.
The new law — made retroactive to the current tax year — requires companies employing more than 25 workers to withhold 3 percent of taxable wages from every paycheck unless the individual worker can prove a lesser amount is justified.
The employers also can use new updated withholding tables.
Tax Commissioner Doug Ewald said the 3 percent law affects 7,600 of the state’s 80,000 employers. But those 7,600 employers write paychecks to 70 percent of the state’s employees and pay 75 percent of the total wages.
Catherine Lang, deputy tax commissioner, warned that for many employees, 3 percent may take too much and could end up making the average refund bigger.
“They may have employees who can legitimately withhold at less than 3 percent,” she said. “But they have to have a conversation if one of those employees is at less than 3 percent.”
Someone qualifying for less than 3 percent might include those with several children, large mortgages, or those who received large refunds in recent years, she said.
But employers must get documentation or be subject to a $1,000 fine for each employee for whom too little is withheld.
An employee found to be evading the state’s income tax by claiming excessive exemptions is guilty of a Class II misdemeanor, punishable by not more than six months imprisonment or a $1,000 fine, or both.
Ewald said it may take a few payroll cycles for employers and employees to get withholding figured out.
“We’re not going to be knocking on doors early in the year to make sure they’re withholding 3 percent,” he said.
The state does not want people to withhold too much.
“We want them to have the money in their pocket they deserve to have in their pocket,” Ewald said.
Those who will be most affected by the change are people with lower incomes and part-time seasonal workers, officials said.
The 3 percent requirement was introduced by Omaha Sen. Tom White to ensure that no one – particularly undocumented workers – could claim several exemptions to reduce their withholding and then not file a tax return.
Three percent is the normal amount of withholding for a family of four, tax officials say.
“It’s the only way that we as a state can make sure our citizens aren’t put at a disadvantage,” White said. “If the federal government is not going to control the border, it’s all we can do to protect the citizens of Nebraska.”
If someone has more than four exemptions, it will be easy for them to prove that, he said, with birth certificates, social security information or other evidence.
It’s unacceptable for Nebraska employers to hire undocumented workers, he said, much less to permit them to claim an unjustifiable number of exemptions.
Reach JoAnne Young at 473-7228 or jyoung@journalstar.com.