A look at LB 987 — a bill to index income tax brackets and expand exemption for Social Security income

A look at LB 987 — a bill to index income tax brackets and expand exemption for Social Security income

Today the Legislature may take up debate on LB 987, a bill to index Nebraska’s personal income tax brackets for inflation and expand exemption of Social Security benefits.

Below we take a closer look at LB 987 and its potential impact.

What it does: Bill indexes individual income tax brackets for inflation and expands the Social Security exemption.

What it costs: LB 987 would create a revenue loss of $24.9 million in FY 15-16, increasing to $51.6 million in FY 17-18. The total revenue loss through the next biennium would be $70.6 million.

Who benefits: The indexing provision of the bill would reduce income taxes for about 70 percent of income tax payers, with that percentage growing over time. One example is a person who receives cost-of-living raises each year. This person’s income grows, but only enough to keep pace with inflation, meaning their real purchasing power does not increase. Under current law, the person would slowly face higher and higher tax rates as the raises push him or her into higher tax brackets. Indexing the income tax brackets for inflation would prevent these tax increases, also known as “bracket creep.”

The Social Security provision of the bill primarily benefits Social Security recipients whose incomes fall in the $30,000 to $58,000 range. There is an existing exemption for these benefits that exempts about 59 percent of all benefits in the state, with the exempt portion declining for higher incomes. LB 987 would expand the exemption so that married couples with incomes up to $58,000 and other taxpayers with incomes up to $42,000 would have all of their Social Security benefits exempted from income tax. More than 96 percent of benefits for families with incomes less than $30,000 are already exempt, so these families would not benefit much from LB 987.