Nebraska is in the middle of its most significant income tax overhaul in decades. LB 754, signed in 2023, set a schedule to reduce Nebraska’s top income tax rate from 6.84% to 3.99% flat by 2027 — with 2026 arriving at approximately 4.55% as the penultimate step. Social Security income became fully exempt from state tax in 2025. The catch: Nebraska’s property taxes remain among the highest in the country, substantially offsetting the income tax savings for homeowners.
Nebraska Income Tax Rates 2026
Nebraska uses three income tax brackets for 2026. The top rate continues its annual decline toward the 3.99% flat-rate target:
Single Filers
| Taxable Income | 2026 Rate |
|---|---|
| $0 – $3,700 | 2.46% |
| $3,701 – $22,170 | 3.51% |
| Over $22,170 | 4.55% |
Married Filing Jointly
| Taxable Income | 2026 Rate |
|---|---|
| $0 – $7,390 | 2.46% |
| $7,391 – $44,340 | 3.51% |
| Over $44,340 | 4.55% |
Top Rate Reduction Timeline
| Tax Year | Top Rate | Change |
|---|---|---|
| 2022 | 6.84% | Baseline |
| 2023 | 6.64% | −0.20 pts |
| 2024 | 5.84% | −0.80 pts |
| 2025 | 5.20% | −0.64 pts |
| 2026 | 4.55% | −0.65 pts |
| 2027 | 3.99% (target) | −0.56 pts |
The long-term vision under LB 754 is to compress Nebraska to a single 3.99% flat rate by 2027 — a reduction of nearly 43% from the 2022 peak rate.
Nebraska Tax Calculation Example
Married couple earning $90,000:
- Gross income: $90,000
- Federal standard deduction (used as NE starting point): $29,200
- Nebraska taxable income: ~$60,800
- Tax calculation:
- $7,390 × 2.46% = $182
- ($44,340 − $7,390) × 3.51% = $1,297
- ($60,800 − $44,340) × 4.55% = $749
- Total Nebraska tax: ~$2,228
- Effective rate on gross income: 2.5%
Nebraska uses federal AGI as its starting point, then allows Nebraska-specific modifications. The actual calculation depends on income sources and applicable subtractions.
Social Security: Now Fully Exempt
Nebraska fully exempted Social Security income from state income tax starting with tax year 2025. The exemption was phased in beginning in 2022:
| Tax Year | SS Exemption |
|---|---|
| 2022 | 40% exempt |
| 2023 | 60% exempt |
| 2024 | 80% exempt |
| 2025–2026 | 100% exempt |
All Social Security retirement and disability income is fully excluded from Nebraska taxable income in 2026. This is a significant change for retirees — previously, Nebraska taxed Social Security at similar thresholds to the federal government, which taxed up to 85% of benefits for higher earners.
Military Retirement: Fully Exempt
Nebraska fully exempts military retirement pay from state income tax. This exemption applies to retired pay from the US Armed Forces, National Guard, and Reserve components. Nebraska has made military retirement increasingly attractive as part of broader efforts to attract and retain veterans.
Other Retirement Income
| Income Type | Nebraska Treatment |
|---|---|
| Social Security | Fully exempt (2025+) |
| Military retirement | Fully exempt |
| Federal civil service pensions | Taxable |
| State/local government pensions | Taxable |
| Private pensions / 401(k) | Taxable |
| IRA withdrawals | Taxable |
| Railroad Retirement (Tier I) | Exempt (federal law) |
Nebraska does not have a broad retirement income exclusion like Mississippi or Georgia. Retirees drawing primarily from traditional IRAs, 401(k)s, and non-military pensions will pay the applicable bracket rate on those distributions.
Nebraska vs. Midwest Neighbors
| State | Top Rate | Social Security |
|---|---|---|
| Iowa | 3.8% flat | Exempt |
| Missouri | 4.8% | Exempt (below $85K AGI) |
| Nebraska | 4.55% | Fully exempt |
| Kansas | 5.7% | Taxable |
| South Dakota | 0% | N/A |
| Colorado | 4.4% flat | Partially exempt |
Nebraska’s 4.55% rate places it competitively within the region, though Iowa’s 3.8% flat rate and South Dakota’s zero income tax both offer lower overall income tax burdens.
Nebraska Property Tax: A Major Consideration
Nebraska’s property taxes are the primary fiscal concern for residents and retirees:
| Metric | Nebraska |
|---|---|
| Average effective rate | ~1.73% |
| National average | ~1.10% |
| On a $200,000 home | ~$3,460/year |
| On a $350,000 home | ~$6,055/year |
| National rank | Top 10 highest |
The high property tax burden disproportionately affects retirees on fixed incomes and homeowners in higher-value areas like Omaha and Lincoln. Nebraska has been working to address this through increased property tax credits, but effective rates remain well above national norms.
Property Tax Relief
Nebraska offers a Property Tax Credit that directly reduces property tax bills:
- The credit amount varies by year based on legislative appropriations
- Delivered directly as a credit on your property tax statement
- Also available as a state income tax credit for renters who paid indirectly
In 2024, Nebraska significantly expanded property tax relief through LB 388 and companion legislation, increasing the credit pool to over $1 billion. Check with your county assessor for the current credit applicable to your property.
Homestead Exemption
Nebraska’s homestead exemption provides property tax relief for:
- Residents age 65 or older with household income below certain thresholds
- 100% disabled veterans
- Certain disabled non-veterans
The exemption reduces assessed value by varying amounts depending on income level, potentially eliminating property taxes entirely for qualifying low-income seniors.
Nebraska Sales Tax
| Rate Type | Amount |
|---|---|
| State sales tax | 5.5% |
| Local additions | Up to 2.0% |
| Typical combined rate | 5.5%–7.5% |
| Omaha | ~7.0% |
| Lincoln | ~7.25% |
| Groceries | Exempt |
| Prescription drugs | Exempt |
Nebraska exempts most food for home consumption from sales tax — a notable advantage over states like Mississippi that apply a 7% rate to groceries.
Nebraska Capital Gains
Nebraska taxes capital gains as ordinary income with no preferential rate for long-term gains:
| Gain Type | Nebraska Rate |
|---|---|
| Short-term gains | 2.46%–4.55% (ordinary rates) |
| Long-term gains | 2.46%–4.55% (ordinary rates) |
Unlike federal law, Nebraska does not reduce the tax rate for assets held longer than one year. This can be meaningful for investors with significant realized gains from stocks, mutual funds, or business sales.
Local Income Tax
Nebraska has no local income taxes. Only state income tax applies, plus local sales taxes.
Filing Requirements
| Filing Status | Filing Threshold |
|---|---|
| Single | ~$7,000 |
| Married Filing Jointly | ~$14,000 |
| Non-resident | Any Nebraska source income |
Filing deadline: April 15. Nebraska allows automatic extensions with payment of estimated tax.
Electronic filing is available through the Nebraska Department of Revenue’s NebFile system.
Who Should Consider Nebraska?
Good fit for:
- Workers benefiting from the declining top rate — 3.99% flat by 2027 will be competitive nationally
- Social Security recipients — full exemption eliminates a major income tax concern
- Military retirees — full exemption on retirement pay
- Those who prefer groceries exempt from sales tax
- Buyers seeking lower home prices in smaller cities (though property taxes offset price advantage)
Consider before moving:
- Property taxes of ~1.73% are the highest cost for homeowners — far above the national average
- Pension and IRA distributions are fully taxable — less retirement-friendly than Mississippi or Georgia
- Winters are harsh; cost of living in Omaha/Lincoln is moderate but not dramatically low
- The 3.99% target rate (2027) will be competitive, but property taxes remain the primary fiscal concern
For a side-by-side comparison of every state’s income tax rates, see state income tax rates by state 2026 and best and worst states for taxes 2026. Federal income tax applies on top of state taxes — see 2026 federal income tax brackets to calculate your combined liability.
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