Nebraska taxes for early retirees: falling rates, tax-free Social Security, and a county inheritance tax

By Tom, CPA · Updated October 29, 2026

TL;DR: Nebraska's 2026 rates are 2.46%, 3.51% and 4.55%, with the top rate starting at $49,530 of taxable income for married couples, and the top rate is scheduled to fall to 3.99% in 2027. Social Security and military retirement are fully excluded, but IRA, 401(k), pension and capital gain income are taxed. Nebraska is one of the few states with an inheritance tax.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Nebraska: the Good Life, the Cornhusker State, and the home of a tax system that's been on a diet. The top income tax rate was 6.84% as recently as 2022, and for 2026 it's 4.55%. Social Security went fully tax-free in 2024. That's the good news.

The less-good news is that IRA withdrawals, pensions and capital gains are still taxed, and Nebraska is one of a handful of states with an inheritance tax, collected by counties. This guide covers the 2026 rules for early retirees. Our guides are Husker Hank, retired at 52 with a corn-yellow Jeep, and his sister Thrifty Theresa, who thinks a steakhouse is a once-a-decade event.

CPA Warning Label: Nebraska's inheritance tax is charged on what heirs receive, not on the estate. Children pay 1% above $100,000 each, but a favorite nephew pays 11% above $40,000, and a friend pays 15% above $25,000.

Income tax rates for 2026

Nebraska's statute sets the third and fourth brackets at 4.55% for 2026, so there are effectively three rates. The Department of Revenue's 2026 tax calculation schedule:

Married filing separately uses the single brackets. Under the statute, rates three and four drop to 3.99% for 2027 and later. For reference, the fourth rate was 5.20% for 2025 and 5.84% for 2024.

The 2026 standard deduction is $17,700 married filing jointly, $8,850 single or married filing separately, and $12,950 head of household, with higher amounts for people 65 or older or blind. Nebraska also gives a personal exemption credit, $176 per exemption for 2026 in the DOR's estimated-tax schedule.

What Nebraska taxes, and what it doesn't

• Social Security: fully excluded. Any Social Security included in federal AGI is subtracted on Schedule I, with no income limit, starting in 2024.
• Military retirement: 100% excluded, according to the DOR, with no election required.
• IRA and 401(k) withdrawals, private and most public pensions: taxed as ordinary income. Nebraska has no general retirement-income exclusion.
• Roth conversions: taxed, since they're in federal AGI.
• Capital gains, dividends and interest: taxed at regular rates. There's no general capital gains exclusion for selling index funds or other ordinary investments. Interest on non-Nebraska municipal bonds is added back, and federal bond interest is subtracted.
• Early distribution penalty: if you owe the federal 10% additional tax on early distributions, the estimated-tax worksheet adds Nebraska's share at 29.6% of that federal tax. Yes, Nebraska piggybacks on the penalty.

Illustration: Hank's 2026 Nebraska tax

Illustration: Husker Hank and his wife, both 55, file jointly for 2026. Assumptions: $60,000 of traditional IRA withdrawals that aren't subject to the 10% early-distribution tax (say, from a 72(t) series), $40,000 of long-term capital gains, standard deduction, no other adjustments. Federal AGI is $100,000. Nebraska taxable income is $100,000 minus $17,700, or $82,300. Using the schedule, tax is $3,029.16 plus 4.55% of the $2,500 over $79,800 ($113.75), or $3,142.91. Subtract the personal exemption credit of 2 x $176 = $352, and Hank owes about $2,790.91. If the same income were all Social Security, Nebraska tax would be $0. Hank is not 62 yet, and has asked whether he can be.

Property tax

Nebraska has relatively high property taxes, and they're set locally. In recent years the state has paid for much of its property tax relief through income tax credits for school district and community college property taxes paid, rather than lowering bills directly. The programs and amounts change frequently, so check the DOR's property tax credit pages for the year you file.

Nebraska also has a homestead exemption for homeowners who are 65 or older, and for some disabled owners and veterans, with income and home value limits. It's applied for through the county assessor. Most early retirees won't qualify until 65, and a large portfolio doesn't count against you, but high income might.

Inheritance tax: the county wants a word

Nebraska doesn't have an estate tax, but it does have an inheritance tax, assessed on what each person receives. For deaths on or after January 1, 2023:

Illustration: Theresa leaves $500,000 to her favorite nephew. He pays 11% on $460,000, or $50,600. If she'd left it to her brother Hank, he'd pay 1% on $400,000, or $4,000. Hank has started calling more often.

Retirement accounts and life insurance payable to a named beneficiary can be treated differently, so ask an estate attorney before you assume they're out of reach.

Sales tax, residency and estimated payments

The state sales and use tax rate is 5.5%, and local governments may add 0.5% to 2%.

Nebraska residents are taxed on all income; part-year residents and nonresidents are taxed on Nebraska-source income. For estimated taxes, the 2026 1040N-ES worksheet sets the required annual payment at the smaller of 90% of this year's tax or 100% of last year's, or 110% if last year's AGI was over $150,000 ($75,000 married filing separately). Early retirees with no withholding should plan for quarterly payments.

Common Nebraska mistakes early retirees make

• Using a calculator with old rates. The fourth rate was 5.84% in 2024 and 5.20% in 2025. Anything older than the 2026 schedule will overstate your bill.
• Assuming Social Security means retirement income is exempt. Only Social Security and military retirement are fully excluded. Your IRA, 401(k) and private pension are not.
• Ignoring the early-distribution add-on. If you owe the federal 10% early-withdrawal tax, Nebraska's worksheet adds 29.6% of it. On a $20,000 early withdrawal, the federal additional tax is $2,000, and the Nebraska add-on is $592.
• Naming non-relatives without checking the inheritance tax. A friend who inherits $200,000 pays 15% on $175,000, or $26,250.
• Forgetting the property tax credits. Nebraska's relief often arrives as an income tax credit you must claim on your return, not as a lower property tax bill.

Theresa has written all of these on an index card, which she laminated, because laminating is cheaper than redoing a tax return.

A Nebraska early-retirement checklist

1. Pull the current year's brackets and forms from the Nebraska Department of Revenue before you plan withdrawals. Nebraska has been cutting rates, so last year's numbers won't match.
2. Map your income sources to their Nebraska treatment: Social Security, military retirement, IRA and 401(k) withdrawals, Roth conversions, and capital gains each work differently.
3. Decide on Roth conversions by December, modeling federal and Nebraska tax together rather than one at a time.
4. Check the property tax credits and homestead exemption every year. Amounts and income limits change often, and some need an application.
5. Review your estate plan for the inheritance tax. Nebraska is one of the few states that still has one, and relatives beyond your spouse may owe it. An estate attorney is worth the fee.
6. Set up estimated payments if you no longer have withholding, or ask your IRA custodian to withhold Nebraska tax.

Do all six and you'll have Nebraska handled better than most of the state's corn handles hail.

Planning moves for an early retiree in Nebraska

• Wait for 2027 if you can. The top rate drops from 4.55% to 3.99%. Pushing a large Roth conversion or gain from December 2026 into January 2027 saves 0.56% of the amount, or $560 per $100,000.
• Use the 3.51% bracket. For a married couple, taxable income up to $49,530 stays below the top rate. A steady annual conversion ladder sized to that line can be efficient.
• Plan beneficiaries with the inheritance tax in mind. Spouses pay nothing, and immediate relatives pay just 1% above $100,000 each.
• Watch the federal side. Nebraska ignores Social Security, but the IRS doesn't; see our tax torpedo guide.

Comparing states? See Colorado, Minnesota and Illinois, then try the state tax move calculator and our residency change guide.