Nebraska Microenterprise Tax Credit
$20,000
About the Program
The Nebraska Advantage Microenterprise Tax Credit Act (Act) provides a refundable individual income tax credit to individual applicants who are actively involved in operating a microbusiness based on demonstrated growth of the business over two years.
An individual must submit a Nebraska Advantage Microenterprise Tax Credit Application (application) to reserve credits.
The Act allows the Nebraska Department of Revenue (DOR) to authorize tax credits in the amount of $2 million each calendar year, plus any unclaimed credits carried forward from the prior year.
The applicant may earn a credit equal to 20% of the increase in new investment or new employment at the microbusiness in the year of application and the year after application.
The total lifetime tax credits claimed by any single applicant and any related persons are limited to $20,000. The $20,000 lifetime limit applies to both the individual and the microbusiness.
The applicant may file a subsequent application after the first two-year application period has ended. The applicant may claim no more than the difference between the $20,000 lifetime limit and the amount previously claimed plus any pending amount currently reserved for the applicant or a related person.
If the growth in the microbusiness is intended to benefit more than one individual actively involved in the microbusiness, each individual should submit a separate application, reference the other individual that has applied for the same microbusiness when completing the application, and split the estimated amounts of new investment and new employment accordingly.
I. Eligibility Requirements
The Act requires that the following eligibility requirements be met at the time of application:
Active Involvement
The individual applying must be actively engaged in the operation of the microbusiness with personal involvement on a daily basis in the management and operation of the microbusiness. Any individual for whom the microbusiness is considered a passive activity for federal income tax purposes is not actively engaged in the operation of the microbusiness.
Number of Full-time Equivalent Employees
The microbusiness cannot exceed five full-time equivalent (FTE) employees at the time of application. DOR requires that the applicant provide documentation to show the total hours paid for the most recently completed pay period when the application is submitted. DOR may request payroll registers for additional periods.
Note: The number of full-time equivalent employees does not equal the number of individuals employed in many cases. A part-time employee equals less than one equivalent employee. An employee who worked overtime may equal more than one equivalent employee.
Farmers and Livestock Operators
An application will not be accepted from an individual actively engaged in the operation of a farm or livestock operation with a net worth of more than $500,000, including any holdings by a spouse or dependent, based on fair market value. A microbusiness involved in the following activities is not subject to the $500,000 limitation for farm and livestock operations: processing or marketing of agricultural products raised by another person; aquaculture; agricultural tourism; or producing fruits, herbs, tree products, vegetables, tree nuts, dried fruits, organic crops, or nursery crops.
Applicants Who are Dependent upon Another Person to Conduct the Business
An applicant who is required to hold a license to conduct the microbusiness and that license is controlled by another person, or is dependent on supervision by some principal, will not be considered to be operating a separate microbusiness and cannot qualify for credits under the Act. The applicant will be considered an employee of the principal. If the principal meets the requirements for the microenterprise tax credit, an application could be filed by a person actively engaged in the operation of the principal. See GIL 29-17-1 for additional information.
E-Verify
A microbusiness under the Act must use E-Verify, a federal electronic verification program, to ensure that Nebraska employees hired after the date of application are legally able to work in Nebraska. An applicant must provide proof of registration with E-Verify at the time of application. Benefits will not be granted unless the applicant can prove that the work eligibility status of all newly hired employees employed in Nebraska has been electronically verified in a timely manner. All hours worked by, and compensation paid to, an employee who is not timely confirmed as eligible to work in Nebraska will be excluded from the calculation of any tax incentive for all periods. See Revenue Ruling 29-13-3.
II. Completing the Application. Establishing an Application Date
An individual must file the application and all items in Part 1 of the application must be properly completed. If any of these items are omitted or are incomplete, the application date will be adjusted to the date on which the last of these items is received.
The application date will determine the base year used for employment and investment calculations. The date of a completed application will be used to determine the priority for the authorization of the project’s expected benefits. There is at least $2 million available for each calendar year through 2032.
If more than one complete application is filed on the day in which the cumulative expected benefits for the year exceed the amount of funds available, the remaining available funds will be prorated among the applicants on that day.
Any application filed after November 1 will be treated as an application filed on the first business day of the following calendar year.
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