Nebraska Retirement Tax Friendliness

Nebraska Retirement Taxes

The state of Nebraska offers retirees a low-key lifestyle. The people are friendly and living costs are relatively low.

The state’s tax system, however, is among the least friendly toward retirees of any in the country. Any Social Security retirement income that is taxed federally is also subject to the Nebraska state income tax. Furthermore, other types of retirement income are fully taxable. Nebraska’s property taxes are among the highest in the country, and it is one of just a handful of states with an inheritance tax.

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Is Nebraska tax-friendly for retirees?

Nebraska is among the least tax-friendly states for retirees in the country. Unlike most other states, it does not exempt Social Security benefits from taxation. Nor does it provide any exemption or deduction for other types of retirement income, with the exception of military retirement income. On top of that, the state has high property tax rates and an inheritance tax. Sales tax rates in Nebraska are close to average.

Is Social Security taxable in Nebraska?

Any Social Security income that is taxed at the federal level is considered taxable income in Nebraska. Therefore, it is subject to the tax rates displayed in the table below.

Are other forms of retirement income taxable in Nebraska?

All other retirement income must be included on your Nebraska state income tax return. This includes income from sources that are frequently exempted or deductible in other states, such as income from a public pension or income from a 401(k). That income is combined with all other forms of taxable income (such as income from working) and taxed at the rates shown in the table below.

How high are property taxes in Nebraska?

Nebraska’s average effective property tax rate is 1.67%. This is one of the highest in the U.S. That means that a typical homeowner spends about $1,670 in property taxes for every $100,000 in home value.

It’s worth noting that despite these high property tax rates, the median home value here is $174,100, which is quite a bit below the national median of $281,900.

What is the Nebraska homestead exemption?

The Nebraska homestead exemption is a program that lowers the overall property tax for homeowners who meet various criteria. To be eligible, seniors must be age 65 or older with an annual household income below $48,601 for single people or $57,701 for married people. The home on which the exemption is claimed can have a value that is no more than the greater of $95,000 or 200% of the average home value at the county level.

The exemption is worth between 100% and 10% of home value, depending on your household income. Households earning less than $33,100.99 (if filing as single) or $38,900.99 (if filing jointly) receive the full exemption. However, that is also limited to a maximum of $40,000 or the average home value in your county, whichever is greater.

How high are sales taxes in Nebraska?

The state and average local sales tax in Nebraska is 6.94%. This ranks as the 29th-highest in the country. Most of that is the state sales tax rate of 5.5%. However, local rates in Nebraska can reach as high as 2.5%. The state of Nebraska exempts all groceries and medicine from the sales tax.

What other Nebraska taxes should I be concerned about?

Nebraska is one of just a handful of states that collects an inheritance tax. The tax varies depending on the relation of the inheritor to the decedent. Direct relatives such as siblings, parents, children and grandchildren are taxed at a rate of just 1%. They also receive a full exemption on the first $40,000 in inheritance.

More distant relatives, such as nephews, nieces, aunts and uncles, receive a smaller exemption of $15,000 and are taxed at a rate of 13% on all inheritance above that. For all other inheritors, the exemption is $10,000 and the tax rate for any inheritance above that amount is 18%.