A special session of the Nebraska Legislature this summer made changes to one of two credit programs used to reduce property taxes. The first program, launched in 2007, is known as the Property Tax Credit (Tier 1) program and provides a direct credit against property taxes owed on real property.
The second, launched in 2020, was known as the School District Property Tax Credit (Tier 2) program, which provided an earned income tax credit on taxes paid to schools on real property. However, as a result of the special session, starting this school year, deductions under the Tier 2 program will be “front-loaded” and directly deducted from property taxes owed to schools, just like the Tier 1 program. Taxpayers no longer need to claim Tier 2 credits when filing income taxes. Both programs currently apply directly to the tax due, but the way credits are calculated for individual packages is still different.
Tier 1 credits are based on the ratio of a parcel’s assessed value to the assessed value of all real property in the state. Tier 2 credits are based on the ratio of school property taxes levied on that parcel to the total school property taxes levied within the county. Credit programs also treat farmland differently. Agricultural land is given 120% extra weight in the Tier 1 program, but not in the Tier 2 program.
Together, the two programs will provide approximately $1.2 billion in credits for the 2024 tax year. The Tier 1 program will provide $437 million and the Tier 2 program will provide $750 million. One way to measure the program’s effectiveness in reducing taxes is to calculate the ratio of 2024 credits distributed to each county relative to the total taxes levied by the county in 2023 (if 2024 data are available). (2023 taxes will be used).
Figure 1 shows the results by county. As Figure 1 shows, deductions as a percentage of total taxes range from 18.1% in Sarpy County to 34.4% in Keya Paha County. In general, tax reductions, at least as a percentage of taxes levied, tend to be larger in rural counties than in more populous counties. However, it should also be noted that per capita taxes levied in rural counties also tend to be higher.
Figure 1. 2024 Property Tax Credit as a Percentage of Property Taxes Charged in 2023 Source: Rolling Prairie Economics estimates based on Nebraska Department of Revenue data. The $1.2 billion in property tax relief provided through the Tier 1 and Tier 2 credit programs equates to approximately 22% of the property taxes levied statewide in 2023. The amount of the deduction is not uniform among taxpayers because different approaches are used to calculate the amount of the deduction, and because of variations in assessed value, taxes levied, location, and other circumstances.
Although not completely uniform, these programs do a decent job of reducing property taxes. The lack of uniformity indicates the difficulty in formulating property tax reduction policies, given the diversity of taxpayer situations.
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