When a Nebraska individual income tax return covers a short period (less than a full year), does the tax have to be annualized and do the exemptions and deductions get prorated?

Plain-English summary

This ruling explains how to fill out a Nebraska individual income tax return that covers a "short period" -- a taxable year shorter than a full 12 months. Short-period returns come up in situations like a decedent's final return, a change of annual accounting period, or an individual who was a Nebraska taxpayer for only part of a separate taxable year.

The core holding: a short-period individual return is a return filed for a separate taxable year, and "[t]he tax shall be computed in the same manner as a return for a full year. Annualization of the individual income tax is not required."

Exemptions and deductions are not prorated. An individual filing a short-period return gets the full Nebraska personal exemption amount, not a fraction of it. Filers who did not itemize on their federal return get the full Nebraska standard deduction. Filers who itemized federally may subtract from Nebraska income either the Nebraska standard deduction or their federal itemized deductions as adjusted for Nebraska, whichever is larger (with total itemized deductions reduced by the federal deduction for state and local income taxes). None of these amounts is prorated for the short period.

The one thing that can be annualized -- the "add-back" federal taxes. Nebraska taxes certain federal amounts directly: the federal alternative minimum tax, the tax on lump-sum distributions, and the tax on a premature distribution from an Individual Retirement Account. Those must be recomputed for Nebraska "under the same method used for calculating these taxes on the federal return." So whenever the Internal Revenue Code requires one of these taxes to be annualized on a short-period federal return, that annualization carries over to the Nebraska recomputation. The regular Nebraska income tax itself is still not annualized.

What this means for you

An individual (or an executor) filing a short Nebraska year

Compute the tax as if it were a full year -- don't annualize the base individual income tax -- and claim the full personal exemption and full standard deduction without cutting them down for the shorter period. This generally makes a short-period Nebraska return simpler than the federal short-period rules.

Preparers handling AMT, lump-sum, or early-IRA-distribution clients

Watch the exception. If your client's short-period federal return annualizes the AMT, the lump-sum-distribution tax, or the premature-IRA-distribution tax, you must carry that same annualized figure into the Nebraska recomputation of those specific taxes. Everything else on the Nebraska return follows the full-year method.

Common questions

Q: Do I have to annualize income on a short-period Nebraska individual return?
A: No. The ruling says the tax is computed the same way as for a full year and annualization of the individual income tax is not required.

Q: Are my personal exemption and standard deduction cut down for the short period?
A: No. The ruling allows the full Nebraska personal exemption and the full standard deduction, and says neither is required to be prorated.

Q: Is anything annualized, then?
A: Only the federal taxes Nebraska taxes directly -- the federal AMT, the tax on lump-sum distributions, and the tax on a premature IRA distribution -- and only when the Internal Revenue Code itself requires those particular taxes to be annualized. They are recomputed for Nebraska using the same method as on the federal return.

Q: Can I rely on this ruling for my own return?
A: It states the Department's general policy and is "binding on the Nebraska Department of Revenue until amended," but it is not tailored to your facts and can be superseded or made obsolete. Confirm it is still in effect and check with a Nebraska tax professional.

Citations and references

• Nebraska Revenue Ruling 22-88-2, "Individual Income Tax -- Short Period Return" (Nebraska Department of Revenue, issued May 2, 1988; approved by State Tax Commissioner John M. Boehm). The ruling text cites no statute sections; it interprets the treatment of short-period individual returns and the recomputation of directly-taxed federal amounts (federal alternative minimum tax, tax on lump-sum distributions, and tax on premature IRA distributions).

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr228802_short_period.pdf

Original ruling text

Revenue Ruling 22-88-2

lndividual lncome Tax - Short Period Return.

ANNUALIZATION OF TAX
EMPTIONS OR STANDARD
DEDUCTION ARE NOT REQUIRED WHEN A SHORT PERIOD NEBRASKA
INDIVIDUAL INCOME TAX RETURN IS FILED. THE FEDERAL TAXES
THAT ARE RECOMPUTED FOR NEBRASKA PURPOSES MUST BE
ANNUALIZEÐ, IF REQU IRED FOR FEDERAL PU RPOSES.

N OF THE PER o

A

Advice has been requested on how to complete a Nebraska lndividual
lRcome Tax Return when filed for a short period.

A short period return filed by an individual is a return fíled for a
separate taxable year. The tax shall be computed in the same manner
as a return for a full year. Annualization of the individual income tax
is not required.

lndividuals who file short period returns shall be allowed to reduce
their adjusted gross income by the full Nebraska personal exemption
amount. Those individuals who did not itemize their deductions for
their federal returns will be allowed a full Nebraska standard deduction. Neither the exemptions nor the standard deduction amount is
required to be prorated for the Nebraska return. Those individuals who
itemized their deductions on their f ederal retu rns ' may subtract f rom
Nebraska income the Nebraska standard deduction or the amount of their
federal deductions as adjusted for- Nebraska, whichever is larger. The
total itemized deductions must be reduced by the amount of the federal
deduction for state and local income taxes.

The federal taxes that are taxed directly by Nebraska, the federal alternative minimum tax, the tax on lump sum distributions, or the tax on a
premature distribution f rom an lndividual Retirement Account must be
recomputed for Nebraska under the same method used for calculating
these taxes on the federal return. Whenever annualization of thesã
'taxes is required under the lnternal Revenue Code, it must also be used
when recomputing the federal tax for Nebraska purposes.
APPROVED:

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'John M. Boehm

State Tax Commissioner

May 2, 1988