Section 125 Plan in Nebraska: The 2026 Employer Guide

• Nebraska employers recapture $91 to $136 per enrolled employee per month in FICA taxes, based on typical benefit elections between $400 and $600 per month (IRS FICA rate: 7.65% employer-side).
• Nebraska's top individual income tax rate was reduced from 6.84% to 5.20% under LB 754 (Neb. Rev. Stat. §77-2715.07) and continues decreasing toward 3.99% by 2027.
• Omaha is home to major insurance employers including Mutual of Omaha, Physicians Mutual, Ameritas Life, Woodmen of the World, and Berkshire Hathaway subsidiaries, making it one of the highest-density §125 employer markets in the Great Plains.
• Nebraska Medicine employs roughly 8,000 workers in Omaha, and Union Pacific Railroad employs roughly 6,000 at its corporate headquarters, both eligible W-2 populations for §125.
• Nebraska employees in the 22% federal bracket electing $520 per month pre-tax take home roughly $181 more per month after federal income tax, Nebraska state income tax, and FICA savings combine.

Before a Union Pacific operations manager in Omaha takes home $181 more a month on the same salary, she does one thing: she elects $520 in benefits pre-tax through her employer's Section 125 cafeteria plan. Federal income tax at 22%, Nebraska state income tax at 5.20% under LB 754, and FICA at 7.65% all come off that $520 before her W-2 is calculated. Her employer recaptures $520 x 12 x 7.65% = $477 in FICA savings on her alone, before the first renewal. Nebraska has no city or county income tax in Omaha, Lincoln, or anywhere else in the state, so the savings model never requires a fourth calculation.

How much does a Nebraska employer actually save on payroll with a §125 plan?

A Nebraska employer with 60 employees each electing $520 per month in pre-tax benefits saves $28,706 per year in employer FICA taxes alone (60 x $520 x 12 x 7.65%). That calculation uses only the employer's 7.65% FICA share on pre-tax elections. It does not count the federal income tax savings employees receive, the Nebraska state income tax savings employees receive, or the reduction in state unemployment insurance premiums that some Nebraska employers see when taxable wages fall. For an employer paying a Benecor admin fee of $35 per enrolled employee per month, the FICA recapture on a $520 election outpaces the fee when monthly elections exceed $458 per employee ($35 divided by 0.0765 = $458), which describes most Nebraska health insurance elections above the individual-only tier.

The paycheck comparison below uses a Union Pacific operations manager earning $82,000 annual salary with a $520 monthly pre-tax election. Numbers are calculated using the 22% federal bracket, 5.20% Nebraska top rate under LB 754, and 7.65% FICA on each paycheck before and after the election.

"Our dispatchers and coordinators earn solid wages, but they were paying full taxes on every dollar of their health premium. The §125 enrollment took three days. The savings appeared on the next paycheck."

How does Nebraska's income tax structure affect a §125 plan?

Nebraska imposes a graduated individual income tax with four brackets, and the top rate has been reduced from 6.84% to 5.20% under LB 754 (2023). For 2025, Nebraska's top rate applies to income above approximately $35,730 for single filers and $71,460 for joint filers under Neb. Rev. Stat. §77-2715.07. Most Omaha insurance, healthcare, and transportation professional workers fall into the top Nebraska bracket, making the full rate applicable to §125 elections. As LB 754 continues reducing the top rate toward 3.99% by 2027, the Nebraska state tax savings layer decreases proportionally, but the federal income tax and FICA layers remain constant and continue to deliver the majority of the combined three-layer benefit.

LB 754: Nebraska's rate reduction to 3.99% and what it means for §125

Nebraska Legislative Bill 754, signed by Governor Pillen in 2023, began reducing the state's top individual income tax rate from 6.84% in annual steps, reaching 5.20% for tax year 2025 with continued reductions scheduled through 2027. The long-term target under LB 754 is a 3.99% flat rate applicable to all income levels. For Nebraska employers evaluating §125 today, the current 5.20% rate still adds a meaningful state income tax savings layer: an employee electing $520 per month saves $27.04 per month from Nebraska income tax alone at the 5.20% rate. At the 3.99% target, that same employee saves $20.75 per month from Nebraska income tax. The federal income tax and FICA savings of $96 per month at the 22% bracket and 7.65% rate are unaffected by LB 754.

No city or county income tax anywhere in Nebraska

Nebraska levies no local income tax on wages in any city or county in the state. Omaha, Lincoln, Bellevue, Grand Island, Kearney, Fremont, Hastings, and every other Nebraska municipality impose zero local income tax on employee wages. This makes Nebraska one of the cleanest §125 compliance environments in the country. Employers in Ohio must confirm whether Cincinnati, Cleveland, or Columbus municipal rates apply to each employee's wages. Employers in Kentucky must resolve occupational license tax treatment in Louisville and Lexington. In Nebraska, the savings model is three layers and three layers only: federal income tax, Nebraska state income tax under LB 754, and FICA. There is no fourth local layer to configure, document, or reconcile at year-end.

FICA recapture: the §125 ROI for every Nebraska employer

The employer-side FICA calculation is straightforward. An Omaha employer with 45 insurance professionals each electing $560 per month saves 45 x $560 x 12 x 7.65% = $23,133 per year in employer FICA. That employer pays Benecor 45 x $35 x 12 = $18,900 per year in admin fees, for a net FICA recapture after fees of $4,233 per year. This calculation does not include the federal income tax reduction delivered to the 45 employees or the Nebraska state income tax savings under LB 754. The combined employee and employer tax benefit is substantially larger than the FICA recapture line alone.

What Nebraska employees actually get with a §125 plan

Every Benecor Health §125 plan includes a benefit stack of supplemental health services at $0 employee cost. Nebraska employees enrolled in the plan receive unlimited virtual urgent care, unlimited primary care visits, unlimited mental health counseling, access to more than 800 generic medications, and dental, vision, lab, and prescription discount networks at no additional charge. The market value of these supplemental benefits is roughly $5,630 per enrolled employee per year based on average healthcare utilization. For a Mutual of Omaha underwriter paying $520 per month in pre-tax health premiums, the combination of $181 per month in tax savings and $5,630 per year in supplemental benefit value represents a material improvement in total compensation without a wage increase.

Nebraska industries with the highest §125 ROI

Nebraska's economy is concentrated in insurance and financial services, healthcare, transportation and logistics, agriculture and food processing, and government. Each sector has distinct wage distributions, benefit election patterns, and turnover dynamics that affect §125 plan design. The highest FICA recapture per employer dollar occurs in sectors where average wages exceed $60,000 and elections are consistently above the $458 monthly breakeven point. Insurance, healthcare, and senior transportation roles meet this threshold. Agriculture and food processing generate high headcount with lower per-employee FICA recapture but still deliver significant employee income tax benefits.

Omaha's insurance capital: Berkshire Hathaway, Mutual of Omaha, Ameritas, Physicians Mutual

Omaha has housed major insurance and financial services companies for more than a century, earning its designation as the Insurance Capital of America. Mutual of Omaha, founded in Omaha in 1909, employs roughly 4,000 workers in the Omaha metro. Physicians Mutual employs roughly 1,200 workers in Omaha. Ameritas Life Partners employs several hundred W-2 workers in Lincoln and Omaha. Woodmen of the World Life Insurance Society and Assurity Life Insurance Company are headquartered in Lincoln. Berkshire Hathaway, headquartered in Omaha, employs thousands of Nebraska W-2 workers across GEICO, General Re, and other insurance subsidiaries. A Mutual of Omaha senior underwriter at $88,000 electing $580 per month saves approximately $197 per month in combined taxes, and the employer recaptures $580 x 12 x 7.65% = $533 per year on each enrolled worker.

Healthcare: Nebraska Medicine, CHI Health, Bryan Health, Methodist Health System

Nebraska Medicine, the academic medical center affiliated with the University of Nebraska Medical Center in Omaha, employs roughly 8,000 workers including physicians, nurses, allied health professionals, and administrative staff. CHI Health operates 15 hospitals across Nebraska and western Iowa. Bryan Health in Lincoln employs roughly 4,000 workers at its main campus and affiliated clinics. Methodist Health System operates hospitals and clinics in the Omaha metro. Together, these healthcare systems represent more than 25,000 Nebraska W-2 employees in health-adjacent roles. For a CHI Health registered nurse at $72,000 electing $500 per month, the combined monthly tax savings is approximately $171, and the employer recaptures $500 x 12 x 7.65% = $459 per year per enrolled nurse.

Transportation and logistics: Union Pacific, Werner Enterprises, Crete Carrier

Union Pacific Railroad, one of the largest freight railroads in North America, is headquartered in Omaha and employs roughly 6,000 workers at its corporate campus and local operations. Werner Enterprises, one of the largest publicly traded trucking companies in the United States, is headquartered in Omaha and employs several thousand W-2 workers at its Omaha operations center. Crete Carrier Corporation, headquartered in Lincoln, and Sapp Bros. Transportation are significant Nebraska logistics employers with substantial hourly and salary W-2 workforces. A Werner logistics coordinator at $58,000 electing $450 per month saves approximately $155 per month in combined taxes, and the employer recaptures $450 x 12 x 7.65% = $413 per year per enrolled worker.

Agriculture and food processing: JBS, Tyson, Green Plains, Greater Omaha Packing

Nebraska is the third-largest beef producing state in the country (Bureau of Labor Statistics, 2025). JBS USA operates beef processing facilities in Grand Island and Omaha. Tyson Foods operates processing plants in Dakota City and Lexington. Greater Omaha Packing is headquartered in Omaha. Green Plains Inc., headquartered in Omaha, is one of the largest ethanol producers in North America with facilities across Nebraska. Agricultural processing employers often have high headcount and moderate wages, where the employee income tax benefit is most compelling even when per-employee FICA recapture is smaller. A food processing production worker in Grand Island at $44,000 electing $360 per month saves approximately $120 per month, and the employer recaptures $360 x 12 x 7.65% = $331 per year per enrolled worker.

Omaha, Lincoln, and secondary Nebraska markets

Nebraska's employer base is concentrated in two metros. The Omaha-Council Bluffs metro is Nebraska's largest employment center, with roughly 500,000 workers in Douglas, Sarpy, and Washington counties. The Lincoln metro employs roughly 180,000 workers in Lancaster County. Secondary markets in Grand Island, Kearney, Hastings, and North Platte serve agriculture, manufacturing, and distribution employers. All Nebraska municipalities share the same state income tax treatment and the same absence of local income tax, so §125 plan documents and payroll configurations are identical across all Nebraska markets.

Omaha metro: insurance capital, finance, healthcare, and rail

The Omaha metro is home to Nebraska's highest concentration of professional W-2 employees in insurance, financial services, healthcare, and transportation. Berkshire Hathaway, First National Bank of Omaha (FNBO), TD Ameritrade (now Charles Schwab), Kiewit Corporation, Union Pacific, Mutual of Omaha, Nebraska Medicine, and CHI Health all operate major employer footprints in Douglas and Sarpy counties. The Omaha metro average annual wage was approximately $60,000 in 2024 according to the Nebraska Department of Labor, with insurance, finance, and healthcare workers averaging well above that figure. Elections in the Omaha market consistently exceed the $458 monthly breakeven, making per-employer FICA recapture net-positive on nearly every enrolled worker.

Lincoln: state government, university, and healthcare

Lincoln is Nebraska's state capital and home to the University of Nebraska-Lincoln, which employs roughly 5,600 faculty and staff. Bryan Health and its affiliated clinics employ roughly 4,000 workers in Lincoln. State government employs tens of thousands of W-2 workers across Lincoln-area agencies. Ameritas Life Partners, Nelnet (student loan servicer), and Assurity Life are also significant Lincoln employers. Lincoln's wage distribution skews toward government, education, and healthcare, where elections in the $400 to $550 range are typical. A Lincoln state employee at $54,000 electing $420 per month saves approximately $144 per month in combined taxes, and the employer recaptures $420 x 12 x 7.65% = $386 per year per enrolled worker.

Grand Island, Kearney, and North Platte: agriculture, manufacturing, and railroads

Nebraska's secondary markets serve agriculture processing, manufacturing, and freight rail. Grand Island employs JBS USA, Bosselman Enterprises, and Aurora Cooperative Elevator Company. Kearney is home to manufacturing employers including Smith International and distribution centers for national retailers. North Platte is a major Union Pacific rail hub, employing hundreds of W-2 workers in railroad operations. Elections in secondary Nebraska markets average $350 to $450 per month, reflecting lower average wages than Omaha or Lincoln. Even at $380 per month, an employer recaptures $380 x 12 x 7.65% = $349 per year per enrolled worker, and the employee gains $120 per month in combined tax savings that is fully visible on the first post-enrollment paycheck.

Nebraska compliance: tax conformity, plan documents, and ERISA

Nebraska §125 compliance involves three primary requirements: a written plan document and summary plan description meeting IRS and ERISA standards, payroll deduction codes that correctly reduce W-2 Boxes 1, 3, and 5, and underlying benefit products issued by carriers licensed in Nebraska. Nebraska itself imposes no state-specific plan document requirements, no separate plan registration with the Nebraska Department of Revenue, and no annual state-level filing obligations for the §125 plan wrapper. Nebraska employers subject to ERISA file IRS Form 5500 at the plan level when applicable under standard federal thresholds, without additional Nebraska state filings.

Nebraska Department of Revenue and §125 tax conformity

Nebraska conforms to federal adjusted gross income as the starting point for individual income tax computation under Neb. Rev. Stat. §77-2716. Amounts excluded from federal wages through a §125 cafeteria plan election are automatically excluded from Nebraska taxable wages. Nebraska employers do not need to make a separate adjustment on payroll tax forms for the Nebraska state income tax savings associated with §125 elections. The Nebraska Department of Revenue has not issued guidance specific to §125 plans beyond its general federal conformity rule, which has applied consistently since the original adoption of AGI conformity. This makes Nebraska payroll configuration for §125 straightforward: reduce W-2 Box 1 wages for the election, and Nebraska taxable wages decrease automatically.

The non-compliant §125 market: Nebraska employers must verify their plan

A meaningful portion of Nebraska employers operating pre-tax payroll deductions do so without a written plan document, without an adoption agreement, or with plan documents that have not been updated since original enrollment. A §125 plan without a current written plan document fails to meet the requirements of IRS Treas. Reg. §1.125-1(c), which requires the plan to be in writing before any elections take effect. Nebraska employers operating informal pre-tax deductions expose themselves to IRS reclassification of all pre-tax elections as after-tax compensation, resulting in FICA and income tax liability plus penalties for all open tax years. Benecor confirms plan document compliance as part of every Nebraska implementation.

ACA employer mandate in Nebraska

Nebraska employers with 50 or more full-time equivalent employees are subject to the ACA employer mandate under IRS Code §4980H, requiring them to offer minimum essential coverage to full-time employees or face potential excise tax penalties. A §125 cafeteria plan does not substitute for ACA-compliant minimum essential coverage but works in combination with it: employers use the §125 plan to make ACA-compliant premiums pre-tax for employees, reducing both the employer's FICA obligation and the employee's net cost of required coverage. Nebraska does not operate a state health insurance exchange; Nebraskans use the federal exchange at healthcare.gov. Nebraska Medicaid expansion (Insure Nebraska, approved by voters in 2018) covers adults up to 138% of the federal poverty level and affects eligibility determination for employees on the exchange.

Launching a §125 plan in Nebraska: the 5-week timeline

A Nebraska §125 plan goes from signed engagement to first pre-tax payroll in five weeks. Week one covers plan design and document drafting, including the adoption agreement, summary plan description, and election change event policy. Week two covers employee enrollment communications in English and Spanish for employers with bilingual workforces in food processing or agriculture. Week three covers payroll deduction code setup and test payroll confirmation. Weeks four and five cover final enrollment, payroll go-live, and the first compliance report comparing actual FICA recapture against the signed savings estimate. Nebraska's absence of local income tax means payroll configuration does not require a city-by-city review for Omaha, Bellevue, and Lincoln employees, which eliminates one common source of implementation delay in other states.