Nebraska’s scenic prairies, friendly communities, and low crime rate make the state attractive for retirees. And Nebraska has a cost of living that is lower than the national average according to the Future Years website, with an overall state and local tax burden slightly over the national average according to the Tax Foundation.
State income tax
If you retire in Nebraska, your income is generally subject to state income tax, including most types of retirement income. Tax rates range from 2.56% up to 6.84%. Social security retirement benefits are taxable in Nebraska to the same extent they must be included on your federal tax return. Tier I and tier II Railroad Retirement Board pension payments are exempt from Nebraska income tax. This includes any dual vested benefits, supplemental annuities, unemployment, and sickness insurance payments you receive from the Railroad Retirement Board.
Military retirement benefits are subject to state income tax in Nebraska to the same extent they are subject to federal income tax. Other types of retirement income are subject to state income tax in Nebraska. This includes government pensions, private pensions and annuities, and distributions from IRAs and other retirement accounts.
You can deduct interest from U.S. government obligations such as U.S. Treasury bonds, bills or notes that was included in taxable income on your federal tax return, including income from mutual funds that invest in U.S. government obligations. Interest, dividends and other distributions from state and local government obligations outside Nebraska are taxable in Nebraska.
Property taxes in Nebraska are relatively high compared to other states. The Tax Foundation indicates that Nebraska ranked fifth among the states in 2009 in terms of property taxes as a percentage of home value at 1.76% overall. The median property taxes paid on a home were $2,164, ranking 17th in the country.
There is property tax relief in the form of the homestead exemption. This exemption is available to Nebraska homeowners who 65 or older, certain disabled homeowners, and certain disabled veterans and their surviving spouses. The amount of the exemption is on a sliding scale based on total income and also depends on the assessed value of the home.
There is a property tax credit based on the valuation of each parcel of real estate, depending on the state funding available for distribution. The Nebraska Department of Revenue reports that a property tax credit of $78.91 per $100,000 of valuation has been determined for the year 2010.
Nebraska has a 5.5 percent state sales tax and cities can add an additional 1.5 percent. Food and prescription drugs are exempt from sales tax. Prepared foods served in restaurants or other establishments are taxable.
The Facts on Nebraska’s Tax Climate – Tax Foundation
Nebraska Homestead Exemption – Nebraska Department of Revenue
Nebraska Individual Income Tax Booklet – Nebraska Department of Revenue
Property Taxes on Owner-Occupied Housing by State, 2004 – 2009 – Tax Foundation
Real Property Tax Credit for Tax Year 2010 – Nebraska Department of Revenue
Retirement in Nebraska – Future Years