Nebraska has completed the phase-in of a state income tax exemption for Social Security benefits, changing how retirement income is treated for tax year 2025 and later. The exemption was enacted through Legislative Bill 873 and was estimated to reduce state revenue by $168 million annually when fully implemented.
Retirement income taxes
Social Security benefits are excluded from Nebraska’s state tax base. Military retirement pay has been fully excluded beginning with the 2022 tax return. Other common retirement income remains subject to state income tax, including withdrawals from individual retirement accounts, 401(k) plans and most pensions.
Those forms of income are taxed at graduated rates ranging from 2.46% to 4.55% under the rates described for the current system. Legislative Bill 754 sets the top rate to decline to 3.99% for 2027 and subsequent tax years.
- Social Security benefits: excluded from Nebraska’s state tax base beginning with the 2025 tax year.
- Military retirement pay: fully excluded beginning with the 2022 tax return.
- IRA, 401(k) and most pension income: generally taxed at graduated state income tax rates.
Sales and property taxes
Nebraska’s state sales tax rate is 5.5%. The average combined state and local sales tax rate is 6.98%, while Omaha’s rate is 7.5%.
Owner-occupied homes in Nebraska have an effective property tax rate of about 1.44% in the figures used for the comparison. Property taxes account for 34.9% of state and local tax revenue.
Omaha cost estimates
The comparison uses Nebraska’s cost-of-living index of 90.103, below California’s 110.72. Average U.S. household spending was $81,905 in 2025. Adjusted to Nebraska prices, that amount is approximately $73,800 per year, or about $6,150 per month, for the couple’s budget assumption. The estimate for a single retiree is $50,000 annually.
Housing values have also changed in the Omaha area. The Federal Housing Finance Agency price index for Omaha rose 4.15% over one year and 40.14% over five years. For a paid-off home valued at $300,000, the effective property tax rate used in the comparison produces an annual bill of about $4,320, or $360 per month.
| Annual item | Couple | Single retiree |
|---|---|---|
| Property tax on an assumed $300,000 home | $4,320 | $4,320 |
| Medicare Part B | $4,870 | $2,435 |
The Medicare Part B figure used in the estimates is $202.90 per person per month. That produces an annual amount of $4,870 for a couple and $2,435 for one person. The estimates combine the tax treatment of different retirement income with household spending, housing and health insurance costs to show the expenses included in the Omaha comparison.
