Nebraska LLC Tax Structure – Classification of LLC Taxes To Be Paid

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A limited liability company in general does not have to pay any business taxes. When we talk about the classification of LLC taxes in Nebraska, we know that it is a pass-through taxation structure. Typically, the profit LLC makes passes through the LLC to its members. Based on the profit share, members file their income tax returns. LLCs, unlike other corporations, do not have to pay income taxes based on profit or revenue.

IRS (Internal Revenue Service) allows LLCs to choose their preferable classification of tax at the beginning of the LLC formation. In general, a single-member LLC is taxed as a sole proprietor and a multi-member LLC is taxed as a partnership. As there is no fixed tax structure for LLCs, anyone certainly wants to opt for the most beneficial one. Keep reading till the end to know more about the tax structure of a Nebraska LLC and related aspects.

Classification of Nebraska LLC Taxes

An LLC is considered a Pass-through Entity because it allows the income to pass through & become self-employment income. The members of the LLC have to pay Self-employment tax or Self-Employment Taxes on any income they earn through the LLC. The LLC has to pay Franchise Tax on its income. In addition to the Self-employment tax, there are some other requirements that an LLC has to consider, such as:

  1. Franchise Tax – Franchise tax applies to or levies upon LLCs, C-corporations, & S-corporations. Sole Proprietorship & Partnerships (directly owned by individuals) are exempted from the Franchise Tax. This tax is to be paid with the office of the Comptroller of Public Accounts.
  2. Federal Tax Identification Number – An LLC with employees must obtain a Federal Tax Identification Number. Nebraska does not have a separate State Tax Identification number.
  3. State Employer Taxes – If an LLC has employees on the payroll, it must pay state employer taxes in Nebraska. These taxes are handled through Nebraska Workforce Commission.
  4. Franchise Tax Report – In Nebraska, the LLCs do not file an annual report with the secretary of state; instead, it is submitted in the form of a Franchise Tax Report with the Nebraska Department of Revenue.

Federal Tax Classifications

When LLCs were recognized as one of the types of Business Corporations, IRS did not create a new tax classification just for the LLC. LLCs were allowed to choose from the current tax classifications.

LLC Taxes to be Paid in Nebraska

There are two main state taxes that an LLC has to pay to the Nebraska Department of Revenue:

State Income Tax

You yourself pay through the earnings while representing your LLC in Nebraska. These earnings get reflected in your personal Tax return & are further calculated at the time of paying the State Income Tax. All the employees you hire will also need to pay the Nebraska state income tax. The Standard Nebraska State Tax rate ranges from 2.46% to 6.48% depending on how much you earn. 

State Sales & Use Tax 

The State Sales & Use tax rate in Nebraska is 5.5%. Some particular goods are also tax-exempted like the goods that are considered basic necessities. Other local taxing jurisdictions, such as cities and counties may imply additional sales tax.

Franchise Tax

Nebraska levies a tax on certain businesses for the right to exist as a legal entity and do certain business in the state. LLCs in Nebraska are exempt from paying the franchise tax unless they file their taxes as corporations.

Federal Self-Employment Tax

Every individual in Nebraska who is earning profit out of the LLC has to pay the Federal Self-Employment Tax (also called the Social Security or Medicare Tax). The Federal Self-Employment Tax applies to all the earnings of an LLC member or manager. The Federal Self-Employment Tax rate in Nebraska is 15.3%. One is able to deduct your LLC’s expenses from the income earned, for that, you must calculate the Self-Employment Tax your LLC owes.

Federal Income Tax 

This tax also applies to the earnings you make in your LLC. One is obliged to pay regular federal income tax on any earnings you take out from your LLC. 

The Federal Income Tax Rate is built upon the earnings you make, the type of your LLC’s industry, the current income tax bracket that is applicable, deductions applicable, and filing status. One only has to pay Federal income tax on profits you take out of the business, allowances, and less certain deductions. This includes your tax-free amount, business expenses as well as other deductions for areas such as retirement plans and healthcare. 

Employee & Employer Taxes 

Any LLC that has employees on the payroll is bound to pay different kinds of taxes that are applicable to all the employees. The employee & employer tax implications are different from all the other types of taxes mentioned above. For instance, all employees of an LLC have to collect and retain the Payroll tax at the time of receiving the salary. Whether you withhold the federal tax and state tax or not, each employee has to file an individual tax return. The employer might also need to pay insurance for any employees if required.

Other Taxes

You may be liable to pay certain other taxes and duties, depending on your type of industry. For example, if you are a gasoline seller then you may need to pay a tax on any fuel you sell. Similarly, if you import or export goods, you may need to pay certain kinds of duties.

Default LLC Tax Classification Rules

By default, the LLCs are categorized as below (In both the categories, separate filing of income is not required):

Disregarded Entity (Single-Member LLC)  

A single-member LLC is usually disregarded from the taxes. Hence a single-member LLC is also called a disregarded entity. Under the U.S. tax law, it is assumed that a single-member LLC is owned by an individual (& not by another LLC), so the U.S. tax law levies rules on it as a Sole Proprietor. Single-member LLC’s owner (Sole Proprietor) has to report all the income of the LLC via his own income tax return.

Sole Proprietorship Taxes

As mentioned earlier, the single owner of the LLC is treated as the Sole proprietor of the LLC & has to file the Self-Employment Tax on all of the LLC’s earnings. Nebraska does not levy State Income Tax, so a single-member LLC must file only the Federal Income Tax.

Partnership (Multi-Member LLC)

Any LLC with more than one owner is referred to as Multi- Member LLC & it is taxed as a partnership by default. Similar to the Single Owner or Single Member LLC, this LLC is also a pass-through entity. This means that the income of the LLC passes through the income of the members & they have to file taxes through their own earnings.

Partnership Taxes

Partnership or Multi-Member LLC has to pay taxes similar to the Single Member LLC. If the Partnership LLC is directly owned by individuals, it is exempted from the Franchise Tax. All the members of the Multi-Member LLC are liable to pay Self-Employment Tax & Federal Income Tax.

Options to Change Default Tax Classification

The LLCs are categorized either as sole proprietorships or as partnerships, depending on the number of members the LLC has. This is the default tax classification applicable to LLCs. However, the LLCs have an option of changing the default classification & opting to register under the following categories for taxation purposes:


An LLC can prefer to be treated as a C-corporation by filing form 8832 (the Entity Classification Election Form) with the IRS. The C-corporation is a regular corporation that is subject to corporate taxes & it is not a pass-through entity. 

C-corporation Taxes

An LLC taxed as a C-Corporation is not a pass-through entity. In a C-corporation, the members/shareholders/ owners are taxed separately. The shareholders of the C-corporation are taxed twice on the dividends that they earn. The dividends of the shareholders are taxed at the corporate level – with a Corporate Tax filed with Form 1120 & at a Shareholder level – an Income Tax filed with Form 1040. Shareholders are subjected to Federal Income Tax.


The S-Corporation is the most common type of corporate structure used by small businesses. It was created to provide corporations with limited liability protection while maintaining the benefits of being a separate legal entity. An LLC can prefer to be treated as S-Corporation by filing Form 2553. S-corporations are small business corporations, that choose to pass through the corporate income, losses, deductions, & credits to the shareholders for the purposes of Federal Taxes.

S-corporation Taxes

An S-Corporation is similar to an LLC except that it is treated by the IRS as a corporation for tax purposes. S-Corps do pay corporate income taxes; however, they are still considered disregarded entities for federal tax purposes.

Like an LLC, an S-Corp reports its annual earnings on a separate Schedule E on the member’s personal account. An S-Corp is treated by the IRS much like a partnership for tax purposes. Unlike Partnership, in S Corporation,  the shareholders are required to pay Federal Self Income tax on their share of the company’s profits.

Choosing a Classification for Your LLC

In terms of owners’ protection against liability, perpetual existence, & savings in Taxation, Both LLCs (Limited Liability Companies) & Corporations are very much alike. However, with regard to formalities, Taxation, & capital, LLCs & Corporations differ in Nebraska. 


Both LLCs and Corporations provide liability protection to their owners. The LLC provides protection against inside liability (towards the employee) & outside liability (towards the creditor). The Corporation usually provides only the inside liability. 

Tax Classification Flexibility

For taxation purposes, an LLC has a choice of being treated as a sole proprietorship, Partnership or C-corporation or S-corporation. A corporation can choose to be treated only as C or S Corporation.


As mentioned earlier, the LLC can choose to be treated as a corporation; the Corporation does not have the option of being treated as the LLC. A Nebraska LLC is subjected to Franchise tax, Federal Income Tax, Sales & Use Taxes & State Employment Taxes (for LLCs that have employees)

A regular corporation or a C- Corporation is subjected to corporate tax, which can be filed through Form 1120 every year. The shareholders have to pay the Income-tax, only when they receive dividends from the Corporation. These dividends are taxed twice at the corporate level (on a corporate form)& at the shareholder level (on shareholder form).

An S- Corporation in LLC is not subjected to corporate taxes. But the shareholders are subjected to Taxation – even if they do not receive any dividends. A member of a Nebraska S-corporation has to pay Federal Self employment Tax only on his salary; any other profits that he makes through the LLC are not subject to the 15.3% Self Employment Tax.

Classification of LLC Taxes – At a Glance

Points of Difference             LLCS- CorporationC-CorporationSole Proprietorship 
TaxationAs an LLC, by default, there is no tax levied at the entity level. The members’ income or even the loss is passed through to members or owners.  Similar to LLC, no tax is levied on an S-Corporation at the entity level. The members’ income or even the loss is passed through to members or owners.  The C-Corporation is often taxed at the entity level. The Dividends are taxed at the shareholders’ level.The Sole- proprietorship as an entity is not taxable. The Sole Proprietor pays taxes as an Individual.
Double TaxationThe LLC does not have Double TaxationThere is no Double Taxation in S-Corporation There is Double Taxation in C-Corporation, only when the Shareholders earn in the form of dividends.No Double Taxation in a sole proprietorship.
Self Employment TaxThe net income of the members or owners is subject to self-employment tax. The salaries of the shareholder are subject to self-employment tax, but any other profits that the shareholder makes are not subject to the employment tax.The C-Corporation is subject to self-employment tax.The Sole-proprietorship is subject to self-employment tax
Pass-Through Income/LossAn LLC is often referred to as a Pass-through entity because its income passes through/ passes to its members. Yes, An S Corporation is a Pass-through Entity.No, A C-Corporation is not a Pass-through Entity.Yes, A Sole-proprietorship is a Pass-through Entity.

How Do LLCs Pay Taxes in Nebraska

Any LLC operating in Nebraska is liable to pay 2 kinds of taxes- state taxes as well as federal taxes.

When it comes to paying taxes, there are plenty of tax professionals to choose from, and they can help you determine what you are responsible for. However, it is important to be sure you are comfortable with your choice, and you should talk to at least three people before making a final decision. You can also find tax professionals on sites such as Thumbtack and Yelp.

To pay taxes in Nebraska, you may need to register your business with the Department of Revenue. You can use the online registration portal to register your business. In addition to the registration, you will need to file withholding taxes on a periodic basis. Typically, you will need to estimate your income and make quarterly payments. If your estimated taxes fall short, you could incur a penalty.

As with most states, Nebraska has its own set of rules when it comes to filing taxes. For instance, the Secretary of State requires LLCs to publish a notice of organization for three weeks in a newspaper in the county where they are located. An Affidavit of Publication is usually attached to the publication.

You should also check the Secretary of State’s website to see if your chosen business name is available. Some cities in Nebraska charge a sales tax, which can range from 0.5% to 2%. Also, a few municipalities charge a local tax on certain services.

The state’s income tax ranges from 2.46% to 6.48%. It depends on the income of the LLC, and if the company is a corporation. Typically, the IRS will assign a nine-digit Employer Identification Number to the LLC. This number is used by the IRS to track the tax liabilities of the LLC.

The IRS has also created a website that helps you calculate your estimated taxes. This is particularly useful if you are self-employed. If you are a small business owner, you may want to consider hiring a tax professional to do this for you. They can help you keep your LLC in compliance, and they can give you advice about other issues that arise.

The biggest challenge when it comes to taxes in Nebraska is determining what you are obligated to pay. Taxpayers can easily get confused, and miss a deadline. Not only can missed deadlines cost a lot of money, they can also jeopardize the LLC’s status in the state. But with the right resources, you can make sure you are prepared for the tax season and get through it without a hitch.

There are many things you need to know about the taxation laws of Nebraska. If you are just starting out, you may need to obtain a business license and register with the DOR. Your business name must be unique, and you will need to check with the Secretary of State’s website to make sure the name is legal.

If your business sells goods, you will also need to pay sales taxes. The Sales and Use Tax Return (Form 10) is used by Nebraska businesses to collect and remit taxes.


Which Type of Corporation has double taxation?

C-Corporation. It taxes the dividends of the shareholders at the corporate level as well as at an individual level.

Why is an LLC called a pass-through business entity?

An LLC is often referred to as the pass-through entity because the income or the assets pass through the members or owners of the LLC.

What is the default classification of the LLC?

The LLCs have two default classifications. It can be termed as a single-member LLC or a multi-member LLC.

What should be taken into consideration while changing the default classification of the LLC?

When choosing a different classification for taxation, it is essential to understand the liabilities & taxes applicable in that classification.

In Conclusion

Every Tax classification has its own set of benefits & restrictions. Every state will have different taxation rules for each of the categories of business corporations. Depending on the objective of formation of the business entity (Eg. To avoid dual Taxation- one can choose S Corporation, for more flexibility, one can choose the LLC format). It is essential to understand the taxing structure of each country & each Classification; to decide how you wish to treat your LLC.

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