State-by-State Guide to Taxes on Retirees
Tool | December 2021

Nebraska State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.


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The Bottom Line
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Least Tax-Friendly

Nebraska is one of the least tax-friendly state in the nation for retirees, primarily because of steep income and property taxes. The Cornhusker State taxes most of the Social Security benefits received by seniors with income over a threshold amount (although taxes on seniors with income over the threshold amount will be lowered over the next few years). Most other retirement income, including public and private pensions, IRA withdrawals and 401(k) funds are taxed, too. Plus, the top income tax rate kicks in pretty quickly.

Nebraska's median property tax rate is also the ninth-highest in the country. Seniors can get an exemption for up to $40,000 of assessed value, but there are income thresholds for this tax break, too.

Moderate sales tax rates help. But they're not enough to offer much of a counter balance to the state's lofty income and property taxes.

Income Tax Range

Low: 2.46% (on up to $3,340 of taxable income for single filers and $6,660 for married couples filing jointly)

High: 6.84% (on taxable income over $32,210 for single filers and $64,430 for married couples filing jointly)

Taxation of Social Security Benefits

For 2021, Social Security benefits are not taxed for joint filers with a federal adjusted gross income of $59,960 or less and other taxpayers with a federal AGI of $44,460 or less. For taxpayers exceeding these thresholds, Social Security benefits are taxed by Nebraska to the same extent they are taxed at the federal level.

For 2021, taxpayers can chose to deduct 5% of Social Security benefits included in federal AGI instead of following the rules above. The optional deduction percentage increases to 20% for 2022, 30% for 2023, 40% for 2024, and 50% for 2025 and thereafter. (Note: The state legislature intends to enact future legislation that would increase the percentage to 60% for 2026, 70% for 2027, 80% for 2028, 90% for 2029, and 100% for 2030 and beyond.)

Tax Breaks for Other Retirement Income

Military retirees can choose to exclude either (1) 40% of military retirement income for seven years, or (2) 15% of military retirement income for all years beginning at age 67. (Beginning in 2022, 100% of military retirement can be excluded to the extent it's included in federal AGI.)

Railroad Retirement benefits are fully exempt.

Sales Tax

5.5% state levy. Localities can add as much as 2.5%, and the average combined rate is 6.94%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Exempt

Real Property Taxes

People over age 65 who own and occupy their residence from January 1 through August 15 and meet income restrictions qualify for a homestead exemption that exempts all or a portion of a property's value from taxation. For 2021 applications, single filers earning less than $29,801 and married filers earning less than $35,101 qualify for the maximum exemption of the taxable value of their homestead, up to $40,000 or 100% of the county's average assessed value of single-family residential properties, whichever is greater.

Annual Car Taxes and Fees

An annual vehicle excise tax based on the car's sticker price (MSRP) and age is imposed until the vehicle is 14 years old.

Estate and Inheritance Taxes

With Nebraska's inheritance tax, the closer the heir's relationship to the decedent, the smaller the tax rate and the greater the exemption (surviving spouses are exempt from the tax). For example, the tax on heirs who are immediate relatives (e.g., parents, grandparents, siblings, children and other lineal descendants) is only 1% and does not apply to property that is worth less than $40,000. For remote relatives (e.g., uncles, aunts, nieces, nephews), the tax rate is 13% and the exemption amount is $15,000. For all other heirs, the tax is imposed at an 18% rate on property worth $10,000 or more.