Nebraska for retirees: Social Security and military pensions untaxed, everything else taxed in full

Nebraska stopped taxing Social Security in 2024. Every dollar of benefits that is taxed federally comes back off on Schedule I, at any age and any income. Military retirement pay has been fully exempt since 2022, and Civil Service Retirement annuities since 2024. That is the end of the good news. A private pension, a state or local government pension, a traditional IRA withdrawal, a 401(k) distribution and a Roth conversion are all taxed as ordinary income at the regular rates, up to 4.55% in 2026, with no age test and no exclusion. What Nebraska gives seniors on the income tax is an addition to the standard deduction for each person 65 or older, about $1,650 per spouse on a joint return. What it gives them on the property tax, the homestead exemption, is worth far more for those whose income fits the table.

For a Nebraska retiree, then, the state tax on retirement income is a question of which account the money comes from. Social Security and a military pension cost nothing. A traditional IRA dollar costs roughly 3.5% to 4.55% on top of the federal tax this year, and 3.99% at most from 2027.

What comes off, and where

The Social Security subtraction is of the taxable amount from line 6b of the federal return, not the gross benefit on the SSA-1099. If none of the benefit is taxed federally there is nothing to subtract and nothing to tax.

Social Security. The subtraction on line 34 is 100% of the benefits included in federal AGI for tax years 2024 and later, with no income limit. Before 2024 Nebraska taxed benefits above an income threshold and was phasing the tax out a few points a year; the 2023 Legislature finished the job a year early. A couple whose federal return shows $30,600 of taxable Social Security subtracts $30,600.

Military retirement. A retiree subtracts all of the retirement pay on the DFAS 1099-R, and a surviving spouse subtracts the survivor benefit; the Department asks for the 1099-R to be attached. The subtraction has been 100% since tax year 2022.

Civil service annuities. Since 2024 a retired federal employee subtracts the annuity earned in federal service on line 41. The statute and the form say Civil Service Retirement annuities; the Department’s summary of the 2023 law refers to both the older CSRS and the newer FERS, and a FERS retiree should confirm the treatment before relying on it (verify).

Everything else. There is no general pension exclusion and no retirement income exclusion by age. A Nebraska school retirement pension, an Omaha city pension, a corporate pension, an annuity and every traditional IRA or 401(k) dollar is taxed. A retiree with $60,000 of pension and IRA income and nothing else, married, both over 65, pays about $930 after the standard deduction with the age additions and the two exemption credits.

The rates a retiree pays

Taxable retirement income is Nebraska AGI minus the Nebraska standard deduction, then taxed at 2.46% on the first $8,250 of a joint return, 3.51% from there to $49,530, and 4.55% above that. The standard deduction for a couple filing jointly is $17,700 for 2026, plus an addition for each spouse 65 or older, about $1,650 each; for a single filer it is $8,850 plus about $2,050. Each person on the return is then a $176 nonrefundable credit. A couple both over 65 can draw about $21,000 of taxable pension and IRA income on top of any Social Security before owing a dollar of Nebraska tax, and a further $8,250 at 2.46% costs $203, less the $352 of exemption credits. In practice a modest retired couple owes nothing, and a comfortable one owes a few hundred to a few thousand dollars.

Roth conversions

A conversion is a distribution from a traditional IRA that goes straight into a Roth. It is taxable federally in the year of the conversion, it is in federal AGI, and nothing on Schedule I takes it out, so Nebraska taxes it at the regular rates. A $50,000 conversion costs a retired couple something between $1,750 and $2,275 of Nebraska tax depending on where it lands in the brackets; a $100,000 conversion by a single filer costs about $4,500.

Three things bear on timing. First, the rate schedule is still falling: the top rate is 4.55% this year and 3.99% for 2027, so a conversion that can wait a year is taxed at a lower Nebraska rate, and a conversion spread across 2026 and 2027 pays less than the same amount converted in 2026. Second, the conversion raises federal AGI, which can raise Medicare premiums two years later through IRMAA and change the homestead exemption income test described below, since that test counts the whole household income. Third, the Roth withdrawals that follow are tax-free federally and in Nebraska, and if the retiree later moves to a state that taxes retirement income, the converted money is beyond its reach too.

The federal senior deduction, and why it does not help here

The $6,000 federal deduction for people 65 and older, in effect for 2025 through 2028, comes off after adjusted gross income, alongside the standard deduction. Form 1040N starts from AGI. The deduction never reaches the Nebraska return, and no add-back is needed because nothing was taken out. The same is true of the extra federal standard deduction for age. What Nebraska gives instead is its own addition to the state standard deduction for each 65-or-older box checked on line 2a or 2b, about $2,050 for a single filer and $1,650 per spouse on a joint return, worth roughly $60 to $90 of tax per person, and the exclusion of Social Security itself, which for most retirees is worth far more.

There is also a nonrefundable credit for the elderly or disabled on line 20, a share of the federal Schedule R credit (verify). The federal credit is small and its income limits have not been indexed in decades, so few people qualify; if the federal return has it, the Nebraska return gets a piece.

Relief outside the income tax: the homestead exemption

For an older Nebraskan of modest means, the homestead exemption is the largest tax break the state offers, and it is not on Form 1040N. It is administered by the Department’s Property Assessment Division and applied for at the county assessor on Form 458 between February 2 and June 30 each year, every year. It exempts part or all of the home’s assessed value from property tax, and the share depends on household income.

Income figures: they are taken from a reproduction of the Department’s 2026 table and should be checked against the Department’s own. The 2027 table is to come. “Household income” counts Social Security and all retirement income in full, even though the income tax ignores Social Security.

The exempt value is capped at the greater of $95,000 or 200% of the county’s average assessed value of a single-family home, and a home worth more than the county’s maximum loses 10% of the exemption for every $2,500 over it, to nothing at $20,000 over. Separate categories with their own income tables cover qualified disabled individuals and disabled veterans and their surviving spouses; the veterans’ cap is higher, 225% of the county average or $110,000. The couple in the worked example above, with $85,000 of household income counting their full Social Security, is over the married limit and gets nothing; a widow with $30,000 of Social Security and a $12,000 pension gets 100% of a $200,000 home exempted in most counties. The deadline is firm: a 2026 application closed June 30, 2026, and the 2027 window runs February 2 to June 30, 2027.

Two property tax credits are smaller. The school district credit is printed on the property tax statement as a reduction before you pay; there is nothing to claim. The community college credit is claimed on Form PTC with the return and is refundable, so a retiree who owes no Nebraska income tax should still file to collect it.

Withholding and estimates in retirement

Because Nebraska taxes pensions and IRA distributions, a retiree should have Nebraska tax withheld from them or make estimated payments. Pension payers and IRA custodians will withhold Nebraska tax if asked; many default to none. Anyone who expects to owe $500 or more after withholding and credits makes four payments on Form 1040N-ES, due April 15, June 15 and September 15, 2026 and January 15, 2027, and the safe harbor is 100% of last year’s tax (110% if last year’s federal AGI was over $150,000). A one-time Roth conversion late in the year is the classic way to end up with a penalty on Form 2210N; a withholding election on the conversion itself, or an estimated payment by January 15, avoids it.

Moving in, moving out

Federal law since 1996 bars a state from taxing the retirement income of someone who no longer lives there. A pension earned in another state and paid to a new Nebraska resident is Nebraska’s to tax, and Nebraska does, from the day of the move. The reverse holds too: a Nebraskan who retires to another state owes Nebraska nothing on the pension after leaving. The move year splits on Schedule III, with pension and IRA payments allocated by the residence on the date each was received. How Nebraska decides when you became or stopped being a resident is in Moving to Nebraska.