Nebraska Withholding Tax Guide

In Nebraska, businesses that employ workers are required to withhold state income tax from their employees’ wages and remit it to the Nebraska Department of Revenue. This withholding tax ensures that employees meet their state income tax obligations throughout the year, reducing the risk of large tax liabilities when filing their annual returns. For employers, understanding how to properly register for withholding tax, calculate the correct amounts, file reports, and remit payments is critical for compliance. Nebraska offers tools and guidelines to make the withholding process as efficient as possible, helping businesses fulfill their legal responsibilities and avoid penalties for noncompliance. Whether you’re a small business owner or manage a large workforce, staying informed about Nebraska’s withholding tax requirements is essential for smooth operations.

What is Nebraska Withholding Tax?

Nebraska withholding tax is the amount employers must withhold from employee wages to cover state income tax liabilities. The withheld amounts are submitted to the Nebraska Department of Revenue and contribute toward the employee’s total tax liability when they file their annual tax return.

The withholding process helps both employees and the state. Employees benefit by prepaying their taxes in smaller, regular increments, avoiding large lump sums at tax time. The state ensures a steady flow of tax revenue to fund public services.

Who Must Withhold?

• Employers: Any employer that has employees working in Nebraska is required to withhold state income taxes, regardless of the employer’s location.
• Payments to Employees: Employers must withhold tax on all taxable wages, including salaries, bonuses, and commissions. Non-cash compensation and certain fringe benefits may also be subject to withholding tax.

Step 1: Registering for Nebraska Withholding Tax

Before withholding any state income taxes, an employer must register with the Nebraska Department of Revenue for a Nebraska Withholding Tax Account.

How to Register?

• Online Registration: Employers can register online through the Nebraska Tax Application, available at the Nebraska Department of Revenue website. This process requires the employer’s Federal Employer Identification Number (FEIN) and other essential business details.
• Form 20: Employers can also complete Form 20, the Nebraska Tax Application, and submit it by mail or fax. Once registered, employers will receive a Nebraska Withholding Identification Number, which is used for filing and remitting withholding taxes.

Once the registration is complete, employers will receive confirmation and instructions on how to remit withholding taxes and file the required reports.

Step 2: Calculating Nebraska Withholding Tax

Employers are responsible for calculating the correct amount of state income tax to withhold from each employee’s paycheck. The amount to be withheld is based on the employee’s taxable income, which can be determined through the employee’s W-4 form and the Nebraska withholding tax tables.

How to Calculate Withholding

1. Employees must complete a federal Form W-4, which employers use to determine the employee’s filing status, number of allowances, and any additional withholding preferences. Nebraska uses the federal W-4 for state withholding purposes.
2. Employers should refer to the Nebraska State Income Tax Withholding Tables, published by the Nebraska Department of Revenue, to calculate the correct withholding based on the employee’s earnings and W-4 information. The tables provide withholding amounts based on a range of income brackets and filing statuses.
3. For bonuses, commissions, and other forms of supplemental wages, employers should use the flat withholding rate set by Nebraska, which is typically 5%.

Step 3: Filing and Paying Nebraska Withholding Tax

After calculating and withholding the correct amount of tax from each paycheck, employers must file periodic reports and remit the tax to the Nebraska Department of Revenue.

Filing Frequency

The frequency of filing and remitting withholding taxes depends on the total amount of tax withheld during the year:

• Quarterly Filing: Employers who withhold less than $500 in state taxes per quarter can file and pay quarterly.
• Monthly Filing: Employers withholding more than $500 per quarter but less than $3,000 per year are required to file and pay monthly.
• Semiweekly Filing: Large employers who withhold more than $3,000 in taxes per year must remit taxes on a semiweekly basis, similar to federal withholding requirements.

Filing Deadlines

• Quarterly Filers: Returns and payments are due by the 15th day of the month following the end of the quarter.
• Monthly Filers: Returns and payments are due by the 15th of the following month.
• Semiweekly Filers: Payments are generally due three business days after payday.

How to File and Pay Nebraska Withholding Tax?

Employers can file returns and make payments through the Nebraska Department of Revenue’s online filing system. Employers can also remit payments by mail using paper forms, but electronic filing is encouraged to simplify the process.

Step 4: Year-End Reporting

At the end of the year, employers must report the total amount of withholding tax withheld from employee wages using federal and state forms.

1. W-2 Forms: Employers must provide employees with Form W-2 by January 31 of the following year. The W-2 summarizes the total wages paid and taxes withheld during the year.
2. Form W-3N: Employers must also submit Form W-3N, the Nebraska Reconciliation of Income Tax Withheld, to the Nebraska Department of Revenue. This form reconciles the total tax withheld with the amount remitted throughout the year.
3. Federal Forms: Employers must also submit copies of W-2 forms to the IRS, along with the federal Form W-3.

Penalties for Non-Compliance

Failure to withhold, report, or remit withholding taxes on time can result in penalties and interest charges. Penalties may include:

• Late Filing Penalties: A penalty of 5% per month for failure to file on time, up to a maximum of 25%.
• Late Payment Penalties: Interest accrues on any unpaid taxes from the original due date until the payment is made.

To avoid penalties, employers should ensure timely and accurate filing and remittance of withholding taxes.