Nebraska Payroll Tax Penalties & Interest Checklist
Understanding Nebraska Withholding Tax Penalties and
Interest
Nebraska assesses penalties and interest when employers fail to remit income tax withholding on time or file required returns by their due dates. Income tax actually deducted and withheld from employees constitutes a trust fund held for the state under Nebraska law, and failure to remit these funds triggers automatic charges that increase the total tax liability owed.
How Nebraska Calculates Penalties
The Department of Revenue assesses a penalty of 5% of the amount required to be shown on the return for each month or portion of a month the return is late, up to 25%, or $25, whichever amount is greater. This penalty applies when an employer fails to file Form 941N by the required due date.
If an employer withholds income tax from employees but fails to remit it, the employer faces a
5% penalty on the unpaid amount. Penalties are automatically assessed by statute when deadlines are missed, and the Nebraska Department of Revenue must provide notice and a demand for payment before additional penalties accrue.
Additional Penalties After Notice
If penalties remain unpaid within 10 days of the notice and demand, an additional 10% penalty of the total amount due may be added to the balance. Interest begins accruing on the penalty amount itself once this 10-day period expires without payment, further increasing the tax liability.
Interest Rates and Calculation Methods
Interest on Nebraska withholding tax obligations accrues as simple interest, not compound interest, from the original due date. The Tax Commissioner sets the interest rate biennially based on the average short-term borrowing rate for the federal government.
For the period from January 1, 2025, through December 31, 2026, the interest rate is 8% per year. Simple interest calculation means the rate applies only to the principal tax amount, not to
accumulated interest or penalties, unless those penalties remain unpaid after the 10-day notice period.
Penalty Rates for Different Violations
Penalty percentages vary significantly based on the type of violation and the employer’s conduct
under the Nebraska Revenue Act
- Late filing or late payment results in a 5% penalty on the unpaid amount.
- Fraud increases the penalty to 50% of the unpaid amount, rather than 5%.
- Willful failure to withhold or pay carries a 100% penalty on the amount evaded, not
collected, or not accounted for and paid.
- Fraudulent intent may result in an additional penalty of up to $1,000.
- Frivolous or groundless failure to file or pay triggers a $500 penalty for each occurrence.
- Failure to file Form W-2 statements results in a $2 penalty for each statement not filed,
with a maximum annual penalty of $2,000 per employer.
Enforcement Actions Nebraska May Take
The Department of Revenue escalates collection efforts when withholding tax debts remain unpaid. The state may record a tax lien with the Secretary of State and the county Register of
Deeds, enabling enforcement through wage garnishment, seizure of business or personal property, or hindrance of property sales.
Collection Agency Referrals
The Nebraska Department of Revenue may refer delinquent accounts to its collection division or to outside collection agencies. Additional charges, such as collection costs or administrative fees, may be added to the original tax liability, and continued interest accrual increases the total amount owed over time.
Requesting Penalty Abatement with Form 21
Nebraska provides Form 21 for requesting abatement of assessed penalties, and you must complete a separate form for each penalty assessment. The Nebraska Department of Revenue will not process any Form 21 until all associated tax and interest not subject to abatement have been paid in full.
Your request must include a complete explanation of how the failure to comply with Nebraska tax law was due to causes beyond your reasonable control and not due to negligence or intentional disregard of the Nebraska Revenue Act. Reasonable cause must be demonstrated with supporting documentation, and the Department of Revenue reviews all submitted information before determining whether to approve, partially approve, or deny the request.
Appeal Rights After Denial
A denial of the request in whole or in part represents a final determination that may be appealed to the District Court of Lancaster County. You must file the appeal within 30 days after the mailing date of the Nebraska Department of Revenue’s final determination.
Steps to Take After Receiving a Penalty Notice
Review the notice carefully to identify the tax period, the amount of withholding tax owed, the penalty amount, and the interest amount under the Nebraska Jurisdiction Code. Verify that the notice is addressed to the correct business and to the proper tax identification number.
Gather all payroll records, wage reports, copies of Form 941N, the Nebraska Reconciliation of
Income Tax Withheld, and any Federal Form W-4 or other withholding documentation filed during the period listed on the notice. Contact the Department of Revenue to request a detailed account history showing all payments made, returns filed, and their dates.
Verifying Notice Accuracy
Compare your records with the notice to determine whether the debt is accurate or contains errors. Contact the Nebraska Department of Revenue immediately with your tax identification number and supporting documentation if you identify any discrepancy in the assessment.
Payment and Arrangement Options
If the debt is correct, determine the full amount now owed, including any daily interest that continues to accrue on the outstanding tax liability. Ask the Department of Revenue about available payment options, including whether a payment plan or installment agreement may be available for your situation, and document all communications, including dates, times, staff names, and the substance of conversations.
Related Forms and Documentation
Employers may need to reference Form 2220N for corporation underpayment of estimated tax penalties, Form 4466N for corporation application for quick refund of overpayment of estimated tax, or Form 1040N-ES for individual estimated income tax payments when addressing their overall tax liability. Form 4466N allows certain corporations to apply for a quick refund before filing their annual return, and Form 4466N must be filed before the due date of the corporation's income tax return to request expedited processing.
Common Mistakes That Increase Debt
Missing the response or payment deadline shown on the notice may result in additional interest accruing and may trigger escalated collection action. Ignoring follow-up notices does not resolve the debt and may result in enforcement measures, such as liens or wage garnishment.
Sending payments without clearly specifying which tax period and account they apply to can result in incorrect crediting. Failing to provide complete information when the Department of
Revenue requests documentation delays resolution and allows interest to continue accruing, and not retaining proof of payments or copies of correspondence eliminates your ability to verify what was paid and when.
Facing State Tax Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.
We help with
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
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