Bottom Line
Middle-Class Families: Least Tax-Friendly (Go to the Kiplinger Tax Map for Middle-Class Families)
Retirees: Least Tax-Friendly (Go to the Kiplinger Tax Map for Retirees)
Nebraska is one of the least tax-friendly state in the nation, primarily because of steep property taxes. While the cost of housing is comparatively low in the Cornhusker State, the median property tax rate in the state is the ninth-highest in the U.S.
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Income taxes are above average for working residents, but they can be even higher for retirees when compared to other states. That's because Nebraska currently taxes most of the Social Security benefits received by seniors with income over a threshold amount (although taxes on Social Security for all seniors will gradually be eliminated over the next few years). Most other retirement income, including public and private pensions, IRA withdrawals and 401(k) funds are taxed, 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.
Nebraska Income Taxes
Nebraska 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)
Beginning in 2023, the top rate is gradually reduced according to the following schedule: 6.64% in 2023, 6.44% in 2024, 6.24% in 2025, 6% in 2026, and 5.84% in 2027 and thereafter.
Nebraska 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. This deduction doesn't apply after 2024.
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 40% for 2022, 60% for 2023, 80% for 2024, and 100% for 2025 and thereafter.
Nebraska Tax Breaks for Other Retirement Income
Beginning in 2023, retired law enforcement officers can deduct health insurance premiums included in their federal adjusted gross income if they served for at least 20 years and are at least 60 years old.
Military retirement income and Railroad Retirement benefits are fully exempt.
Nebraska 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
Nebraska Real Property Taxes
In Nebraska, the median property tax rate is $1,684 per $100,000 of assessed home value.
Nebraska Property Tax Breaks for Retirees
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 2022 applications, single filers earning less than $30,701 and married filers earning less than $36,101 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.
Nebraska Motor Fuel Taxes
Gasoline: 25.7¢ per gallon.
Diesel: 25.1¢ per gallon.
Nebraska Sin Taxes
Cigarettes and many little cigars: $0.64 per pack
Moist snuff: $0.44 per ounce
Other tobacco products: 20% of the wholesale price
Beer: $0.31 per gallon
Wine: $0.95 per gallon
Liquor: $3.75 per gallon
Nebraska 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 ($100,000 beginning in 2023). For remote relatives (e.g., uncles, aunts, nieces, nephews), the tax rate is 13% and the exemption amount is $15,000 (11% and $40,000, respectively, beginning in 2023). For all other heirs, the tax is imposed at an 18% rate on property worth $10,000 or more (15% and $25,000, respectively, beginning in 2023). However, regardless of the heir's relationship to the decedent, the state's inheritance tax does not apply to heirs 21 years of age or younger.
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