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Nebraska Retirement Tax Friendliness

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Overview of Nebraska Retirement Tax Friendliness

Any Social Security retirement income that is taxed federally is also subject to the Nebraska state income tax, while 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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You will pay of Nebraska state taxes on your pre-tax income of
Your Tax Breakdown
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, your marginal state tax rate is %.
Public pension income is taxed, private pension income is taxed.
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    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Nebraska Retirement Taxes

Photo credit: ©iStock.com/nicoolay

The state of Nebraska offers retirees a low-key lifestyle. The people are friendly and living costs are low – about 6.7% below the national average when accounting for expenses like housing, food, health care and transportation.

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, while 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.

Below, we’ll take closer look at these and other retirement tax rules in Nebraska.

Is Nebraska tax-friendly for retirees?

No. 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. 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?

Yes. Any Social Security income that is taxed at the federal level is considered taxable income in Nebraska and subject to the tax rates displayed in the table found in the next section.

Are other forms of retirement income taxable in Nebraska?

Yes. 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 work income) and taxed at the rates shown in the table below.

Income Tax Brackets

Single Filers
Nebraska Taxable IncomeRate
$0 - $3,0602.46%
$3,060 - $18,3703.51%
$18,370 - $29,5905.01%
$29,590+6.84%
Married, Filing Jointly
Nebraska Taxable IncomeRate
$0 - $6,1202.46%
$6,120 - $36,7303.51%
$36,730 - $59,1805.01%
$59,180+6.84%
Married, Filing Separately
Nebraska Taxable IncomeRate
$0 - $3,0602.46%
$3,060 - $18,3703.51%
$18,370 - $29,5905.01%
$29,590+6.84%
Head of Household
Nebraska Taxable IncomeRate
$0 - $5,7102.46%
$5,710 - $29,3903.51%
$29,390 - $43,8805.01%
$43,880+6.84%

How high are property taxes in Nebraska?

Very high. The state’s average effective property tax rate is 1.88%. This is the sixth highest in the U.S. That means that a typical homeowner spends about $1,880 in property taxes for every $100,000 in home value.

It is worth noting that despite those high property tax rates, housing costs in Nebraska are below average. Overall, housing in Nebraska is about 14.6% less expensive than the U.S. average. However, this will vary depending on where you live.

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 annual household income below $40,101 for single people or $47,601 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 $27,300 or $32,000 (single or married, respectively) receive the full 100% exemption. However, that is also limited to a maximum of $40,000 or the average home value in your county, whichever is greater.

Photo credit: ©iStock.com/beklaus

How high are sales taxes in Nebraska?

The total state and average local sales tax in Nebraska is 6.8%. This ranks as the 26th highest in the country. Most of that is the state sales tax rate of 5.5%. Local rates in Nebraska range from 0% to 2%. 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.

Less-direct relatives, such as nephews, nieces, aunts and uncles, receive a smaller exemption ($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%.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration