The Nebraska College Savings Plan Deduction for NE Residents

Rules for Claiming an Income Tax Deduction for Funding a Nebraska 529 Plan

Overview of the Nebraska College Savings Plan Tax Deduction:

Nebraska residents who contribute to a Nebraska College Savings Plan receive a state income tax deduction of up to $5,000 "per tax return" for couples filing jointly. If a couple uses the Married Filing Separately filing status, the deduction is limited to $2,500 per return.

This means that if a Nebraska couple who files a joint return contributes more than $5,000 on behalf of multiple beneficiaries (children), they are still only allowed to deduct a maximum of $5,000 total on their tax return.

The Nebraska College Savings Plan tax deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). There is no income phaseout on the Nebraska College Savings Plan tax deduction.

Value of the Nebraska College Savings Plan Tax Deduction:

Nebraska residents trying to decide whether to use a Nebraska 529 plan versus another state's Section 529 plan need to account for the potential tax savings of contributing to their in-state plan. Nebraska does not currently offer a tax deduction to residents contributing to out-of-state plans.

Considering that the top Nebraska income tax rate is 6.84%, a full deduction of $5,000 can save a taxpayer up to $342 at tax time. Currently, Nebraska does not offer a tax deduction for contributing to other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Claiming the Nebraska College Savings Plan Tax Deduction:

Residents can claim the Nebraska 529 plan tax deduction on line 55 of their Nebraska Schedule II.

Reference and Documentation:

Additional information on the Nebraska 529 plan tax deduction can be found on the Nebraska Department of the Revenue website and the official Nebraska College Savings Plan website.