This issue highlights tax related identity theft by tax withholding, NEST 529 withdrawals, & Kopsa Otte's Book Club!
Paying Attention Matters!
Identity theft is more than just a credit card problem. In recent years, tax-related identity theft has become increasingly common, with criminals using stolen Social Security numbers and personal information to file fraudulent tax returns, claim refunds, or even report false income. According to the IRS, warning signs can include: receiving tax documents from an employer you never worked for, having your tax return rejected because one has already been filed under your Social Security number, or receiving notices about income you did not earn.
One often-overlooked area affected by identity theft is by tax withholding. If someone uses your identity for employment, wages and withholding may be reported under your Social Security number without your knowledge. This can create confusion when you file your tax return and may result in IRS notices questioning income or withholding amounts. The IRS may also contact taxpayers to verify employment, income, or withholding information if suspicious activity is detected.
The best defense is prevention. Protect sensitive personal information, securely store tax records, and be cautious when responding to emails, texts, or phone calls requesting financial details. The IRS also encourages taxpayers to obtain an Identity Protection PIN (IP PIN), which adds an extra layer of security to help prevent someone else from filing a tax return using your information.
If you believe your identity has been compromised, act quickly. Contact the IRS, review your wage and withholding records, and follow the agencyโs identity theft reporting procedures. Taking prompt action can help minimize delays in processing your return and reduce the risk of future tax-related fraud.
Reviewing your withholding information each year is important, but protecting the personal information behind that withholding is just as critical. A few simple precautions today can help prevent a much bigger headache at tax time.
QUESTION:
Does high school tuition qualify as a withdrawal from my pool of NEST 529 funds?
ANSWER:
If you use money from a Nebraska 529 college savings plan to pay for K-12 private school expenses, the federal government says that's okay, but Nebraska does not currently agree.
So, here's what happens:
โ Federal tax rules: The withdrawal is considered qualified, so you generally won't owe federal tax on the earnings.
โ ๏ธ Nebraska tax rules (through December 31, 2028): Nebraska treats that same withdrawal as non-qualified.
Because Nebraska considers it non-qualified, you may have to:
1. Pay back any Nebraska state tax deduction you previously received for contributing to the 529 plan.
2. Pay Nebraska state income tax on the earnings portion of the withdrawal.
EXAMPLE:
Let's say that you contributed $10,000 to a Nebraska 529 plan and took a Nebraska tax deduction. That account grows to $12,000. You then withdraw the $12,000 to pay private high school tuition.
Federal treatment:
No issue. It's a qualified expense.
Nebraska treatment (before 2029):
- Nebraska may require you to recapture (pay back) the state tax benefit you received from the deduction.
- The $2,000 of earnings may be subject to Nebraska state income tax.
But wait! There is good news!:
Beginning January 1, 2029, Nebraska plans to align with the federal rules. At that point, withdrawals used for K-12 expenses will be considered Nebraska qualified expenses, up to the federal annual limit (currently $20,000 per student per year). That means those withdrawals should no longer trigger the recapture of the state tax deduction or Nebraska tax on the earnings portion.
Did you know Kopsa Otte has a book club? You should too!
Looking for a simple way to invest in your teamโs growth? One idea we highly recommend is starting a book club. It creates opportunities for meaningful conversations, fresh perspectives, and shared learning that can strengthen collaboration throughout your organization.
This summer, our team worked through three great books that sparked valuable discussions:
๐ The Ideal Team Player by Patrick Lencioni
A practical guide to the qualities that make team members successful, focusing on humility, hunger, and people smarts.
๐ Our Iceberg Is Melting by John Kotter
A powerful story about navigating change and leading through uncertainty, all wrapped in an engaging fable.
๐ The Fred Factor by Mark Sanborn
An inspiring reminder that ordinary people can create extraordinary results by going above and beyond in their roles every day.
The conversations these books generated were just as valuable as the reading itself. They challenged us to think differently, communicate more effectively, and continually look for ways to improve as individuals and as a team.
Next up on our reading list is a re-read of The Energy Bus by Jon Gordon. It's one of those books that leaves a lasting impact, and it's so good we decided it's worth revisiting together.
Whether your team is five people or fifty, a book club can be a simple and effective way to encourage professional development, strengthen culture, and generate new ideas. What books have made an impact on your team this year?
This newsletter is for general information only and should not be treated as tax, legal, or investment advice. As always, contact your trusted tax professional.
