Nebraska Income Tax Guide 2026: 4.55% Top Rate, SS Exempt & Path to 3.99%

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

Married Filing Jointly

Top Rate Reduction Timeline

The long-term vision under LB 754 is to compress Nebraska to a single 3.99% flat rate by 2027.

Nebraska Tax Calculation Example (Illustrative)

Married couple earning $90,000:

1. Gross income: $90,000
2. Federal standard deduction used as NE starting point (2026): $32,200
3. Nebraska taxable income: ~$57,800
4. Tax calculation:
   • $7,390 × 2.46% = $182
   • ($44,340 − $7,390) × 3.51% = $1,297
   • ($57,800 − $44,340) × 4.55% = $612
5. Total Nebraska tax (illustrative): ~$2,091
6. Effective rate on gross income: ~2.3%

Nebraska uses federal AGI as its starting point, then allows Nebraska-specific modifications. The actual calculation depends on income sources and applicable subtractions — confirm exact mechanics with the Nebraska Department of Revenue.

Social Security: Now Fully Exempt

Nebraska fully exempted Social Security income from state income tax starting with tax year 2025, after a multi-year phase-in.

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 using thresholds similar to the federal government’s.

Military Retirement: Fully Exempt

Nebraska fully exempts military retirement pay from state income tax.

Other Retirement Income

Nebraska does not have a broad retirement income exclusion like some other states. 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

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. Confirm the current average effective rate with the Nebraska Department of Revenue or Tax Foundation, as this figure was not independently re-verified this session, and Nebraska has enacted multiple rounds of property tax relief legislation in recent years.

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. 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, and certain disabled non-veterans. Confirm current income thresholds with the Nebraska Department of Revenue.

Nebraska Sales Tax

Nebraska exempts most food for home consumption from sales tax.

Nebraska Capital Gains

Nebraska taxes capital gains as ordinary income with no preferential rate for long-term gains.

Local Income Tax

Nebraska has no local income taxes. Only state income tax applies, plus local sales taxes.

Filing Requirements

Confirm current filing thresholds by filing status with the Nebraska Department of Revenue, as these figures were not independently re-verified this session.

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

Consider before moving:

• Property taxes remain a major cost for homeowners — far above the national average, though confirm current relief program benefits
• Pension and IRA distributions are fully taxable — less retirement-friendly than states with a broader exemption
• Winters are harsh

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.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.