Does Nebraska Tax Pensions and Retirement Income?

Nebraska does tax pensions and retirement income, but with major exceptions. Private pensions, traditional 401(k) withdrawals, traditional IRA distributions, 403(b) and 457(b) payouts, and FERS annuities are taxed as ordinary income at rates that top out at 4.55% for the 2026 tax year. Social Security benefits, military retirement pay, Railroad Retirement Board benefits, and Civil Service Retirement System annuities are fully exempt.

What Nebraska Taxes as Ordinary Retirement Income

Nebraska begins with your federal adjusted gross income, then applies its own progressive rates. There is no general exclusion or age-based deduction for private retirement income, so distributions land in the taxable base from the first dollar above your standard deduction and personal exemption.¹

The following retirement income is taxed at Nebraska’s regular rates:

Traditional 401(k), 403(b), and 457(b) distributions
Traditional IRA, SEP IRA, and SIMPLE IRA distributions
Defined benefit pensions from private employers
Nebraska state and local government pensions, including NPERS
Federal Employees Retirement System (FERS) annuities

FERS is worth calling out because it catches people off guard. The state statute names the Civil Service Retirement System specifically, and FERS is not included. If you retired under FERS, your annuity is fully taxable at the state level. Nebraska state and local retirees drawing from NPERS or a state 457(b) plan are in the same position as private-sector 401(k) holders: no exemption, taxed at your marginal rate.

Qualified Roth IRA and Roth 401(k) distributions are the clean exception. Because contributions were already taxed, Nebraska doesn’t tax the withdrawals.

Retirement Income Nebraska Does Not Tax

Four categories of retirement income are subtracted from your federal AGI on your Nebraska return, meaning the state does not tax them at all.

Social Security Benefits

Starting with the 2024 tax year, Nebraska exempts 100% of Social Security benefits with no income limit or phaseout. Whatever amount is taxable on your federal return is subtracted on your Nebraska return.² The 2.8% cost-of-living adjustment for 2026 raises benefit amounts but doesn’t change the exemption, which stays at 100%.³

Military Retirement Pay

For tax years beginning on or after January 1, 2022, Nebraska exempts 100% of military retirement benefit income. The exemption covers periodic payments for service in the uniformed services, reported on a Form 1099-R from the Department of Defense or Office of Personnel Management.² Concurrent Retirement and Disability Pay, which replaces retired pay and is taxable federally, qualifies for the same exclusion.

Railroad Retirement Board Benefits

Tier I and Tier II Railroad Retirement benefits, along with unemployment and sickness insurance paid under the Railroad Unemployment Insurance Act, are fully exempt.⁴

Civil Service Retirement System Annuities

For tax years beginning on or after January 1, 2024, the entire CSRS annuity amount included in your federal AGI can be subtracted on your Nebraska return.² The exemption applies only to CSRS. FERS annuities receive no equivalent break.

2026 Nebraska Income Tax Rates

Nebraska has four statutory brackets, but the top two share the same rate for 2026. The bracket dollar thresholds are adjusted annually for inflation and published by the Department of Revenue on the year’s tax tables.

Bracket 1: 2.46%
Bracket 2: 3.51%
Bracket 3: 4.55%
Bracket 4: 4.55%

The 4.55% top rate for 2026 is down from 5.84% in 2024. Both top brackets drop again to 3.99% for tax years starting in 2027 under the reduction schedule enacted by LB 754 in 2023.⁵

Required Minimum Distributions and Early Withdrawals

Once you’re 73, federal law requires minimum distributions from traditional IRAs, SEP and SIMPLE IRAs, and most employer plans. The first RMD is due by April 1 of the year after you turn 73; subsequent RMDs are due by December 31.⁶ Each RMD is taxable on your Nebraska return. If you delay the first one to April, you’ll take two in the same calendar year, which can push you into a higher bracket. Plan the timing.

Distributions before age 59½ generally trigger a 10% federal penalty on top of income tax.⁷ Nebraska imposes no separate early-withdrawal penalty, but the distribution itself still counts as Nebraska taxable income regardless of whether a federal exception (such as the Rule of 55, disability, or substantially equal periodic payments) applies to the penalty.

Withholding and Estimated Payments

Pension payers don’t always withhold enough state tax, and IRA custodians often withhold none. That leaves the shortfall to you.

For periodic pension payments, federal withholding is set on Form W-4P; lump-sum and on-demand IRA distributions use Form W-4R.⁸ Social Security recipients who want federal tax withheld use Form W-4V, which offers 7%, 10%, 12%, or 22%.⁹

If your Nebraska tax after withholding and credits will exceed $500, you’re expected to make quarterly estimated payments using Form 1040N-ES. The 2026 due dates are April 15, June 15, and September 15 of 2026, plus January 15, 2027.¹⁰ To avoid an underpayment penalty, your payments plus withholding must equal at least 90% of your 2026 Nebraska liability or 100% of your prior-year Nebraska tax, rising to 110% if your 2025 federal AGI exceeded $150,000. For retirees with predictable income, the prior-year safe harbor is usually simpler.

Property Tax Relief for Older Homeowners

Separate from income tax, Nebraska offers a homestead exemption for homeowners aged 65 or older who own and occupy their home. For 2026, relief is scaled to 2025 household income:

$0 to $37,000: 100% exemption
$37,001 to $46,600: gradual reduction from 90% to 50%
$46,601 to $54,300: gradual reduction from 40% to 10%
Above $54,300: no exemption

File Form 458 with your county assessor between February 1 and June 30.¹¹ For retirees living mostly on Social Security and a modest pension, the full exemption is realistic and can be worth thousands per year.

Claiming the Exemptions on Your Nebraska Return

Taxable retirement distributions carry from your federal Form 1040 to Nebraska Form 1040N. The Social Security, military retirement, Railroad Retirement, and CSRS subtractions are all claimed on Nebraska Schedule I, “Adjustments to Income,” with supporting 1099s or W-2s attached for Railroad Retirement and military retirement.¹² Any retirement income that doesn’t fit one of those four categories stays in your Nebraska taxable base. The filing deadline for 2026 calendar-year returns is April 15, 2026.¹³

1
Nebraska Legislature. Nebraska Code 77-2716 – Income Tax Adjustments
2
Nebraska Legislature. Nebraska Code 77-2716 – Income Tax Adjustments
3
SSA. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
4
Nebraska Department of Revenue. Revenue Ruling 22-90-3 – Railroad Retirement Board Benefits
5
Nebraska Legislature. Nebraska Code 77-2715.03 – Individual Income Tax Brackets and Rates
6
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
7
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
8
IRS. 2026 Form W-4P – Withholding Certificate for Periodic Pension or Annuity Payments
9
Internal Revenue Service. About Form W-4V, Voluntary Withholding Request
10
Nebraska Department of Revenue. Nebraska Individual Estimated Income Tax Payment Vouchers
11
Nebraska Department of Revenue. Nebraska Homestead Exemption Information Guide
12
Nebraska Department of Revenue. Form 1040N Schedule I – Nebraska Adjustments to Income
13
Nebraska Department of Revenue. Nebraska Tax Calendar