Nebraska's income tax has been rapidly declining: LB 754 (2023) set a schedule cutting the top rate from 6.84% to 5.84% (2024), 5.2% (2025), 4.55% (2026), and a target of 3.99% (2027). Social Security is now fully exempt from Nebraska income tax (effective 2024). Military retirement is exempt. However, Nebraska has among the highest property taxes in the nation (~1.73% effective rate). Moving to Wyoming or South Dakota eliminates income tax but Nebraska's high property taxes remain on any Nebraska real estate.
At a glance
Key Facts
Nebraska Income Tax Rates (2026)
Nebraska uses graduated brackets. The top rate declines on a legislated schedule: 6.84% (pre-2024) → 5.84% (2024) → 5.2% (2025) → 4.55% (2026) → 3.99% (2027 target, subject to revenue triggers). Lower bracket rates also decline proportionally. Nebraska's goal is a flatter, lower structure competitive with Wyoming and South Dakota.
Social Security Exemption
Nebraska fully exempts Social Security benefits from state income tax starting tax year 2024 (LB 873, 2022). Previously, Nebraska taxed SS income consistent with federal treatment — a significant burden for retirees. The full exemption makes Nebraska much more retirement-friendly than it was pre-2024.
Military Retirement
Nebraska fully exempts military retirement pay from state income tax — a strong benefit for retirees near Offutt Air Force Base (Omaha) and the large Nebraska military community.
Property Tax
Nebraska property tax effective rate approximately 1.73% — among the highest in the nation and the highest in the Great Plains region. A $300,000 home in Nebraska averages approximately $5,190/year in property tax. This is Nebraska's most significant tax burden for most households, significantly exceeding the income tax burden for middle-income earners.
Nebraska Inheritance Tax
Nebraska is one of only six states with an inheritance tax (alongside Iowa, Kentucky, Maryland, New Jersey, Pennsylvania). Nebraska inheritance tax rates: immediate family (children, grandchildren, parents, siblings): 1% on amounts above $100,000 (reformed by LB 310, 2023, from prior higher rates). More distant relatives and non-relatives face higher rates (up to 15%). The inheritance tax has been significantly reduced by reform but still applies.
No Nebraska Estate Tax
Nebraska does not levy a separate state estate tax. Only the inheritance tax (paid by beneficiaries, not the estate) applies.
Introduction
Nebraska is in the middle of an aggressive income tax reform. LB 754 (2023) — the most significant Nebraska tax restructuring in decades — cut the top income tax rate from 6.84% to 5.84% and set a declining schedule targeting 3.99% by 2027. Social Security was simultaneously exempted from Nebraska income tax starting in 2024. For Nebraskans evaluating whether to move to a no-income-tax state like Wyoming or South Dakota, the math is changing fast. Nebraska's remaining challenge: very high property taxes averaging 1.73% — among the top 10 highest in the US. This guide covers what Nebraska residents considering a move need to know.
Section 01
Nebraska's Declining Income Tax: LB 754 Rate Schedule
LB 754 (signed by Governor Jim Pillen, 2023) is the most significant Nebraska tax reform in decades, cutting rates on a schedule tied to revenue benchmarks.
The Rate Decline Schedule
Nebraska's top income tax rate decline: 6.84% (through 2023) → 5.84% (2024) → 5.2% (2025) → 4.55% (2026) → 3.99% (2027 target). Each step requires revenue benchmarks to be met; if Nebraska revenue falls short, reductions can be delayed. The 3.99% target rate would make Nebraska one of the more competitive income tax states in the region — below Iowa's current rate and close to Missouri's. Lower brackets decline proportionally. For most married filers with moderate income, the effective rate is already well below the top marginal rate.
Is Nebraska Worth Staying in After Reform?
Once Nebraska reaches 3.99%, the income tax difference vs Wyoming or South Dakota is approximately 4 percentage points. For a household earning $150,000: Nebraska income tax at 3.99% ~$5,985 vs Wyoming $0 — an annual gap of ~$5,985. Against Nebraska's high property taxes (~$5,000–$8,000/year for a typical Nebraska home), the income tax savings from moving to Wyoming are meaningful but not transformative. The combined Nebraska tax burden is declining substantially from where it was in 2022.
Property Tax: Nebraska's Bigger Issue
For most Nebraska middle-income households, property tax exceeds income tax. A $350,000 home at 1.73% = $6,055/year property tax. At the new 4.55% income tax rate (2026), a $100,000 earner pays approximately $4,550 in income tax. Nebraska's income tax reform does not address the property tax problem — that remains the state's most pressing tax policy challenge and the primary financial motivation for many Nebraskans considering relocation.
Section 02
Nebraska Residency Exit Rules
Nebraska uses standard domicile-based residency:
Nebraska Residency
Nebraska defines a resident as someone domiciled in Nebraska, or a non-domiciliary who maintains a permanent place of abode in Nebraska and spends more than 183 days in the state. To exit Nebraska residency: establish domicile in the new state (driver's license, voter registration, primary home), change vehicle registration, update estate documents. Nebraska does not have a reputation for aggressive post-departure residency audits.
Part-Year Returns
In the year of departure, file a Nebraska part-year resident return (Form 1040N) covering income earned while Nebraska was your domicile. Nebraska-source income after departure (Nebraska rental income, Nebraska business income) remains taxable in Nebraska as a non-resident. Nebraska's inheritance tax applies to Nebraska property regardless of where the decedent was domiciled at death — Nebraska property in your estate is subject to Nebraska inheritance tax for your heirs.
Will Nebraska's income tax actually reach 3.99% by 2027?
LB 754 sets the 3.99% target for 2027 but ties each reduction step to revenue benchmarks. Nebraska must meet general fund revenue thresholds for each rate cut to trigger. Given Nebraska's strong agricultural economy and relatively stable tax base, most tax policy analysts consider the 3.99% target achievable — but not guaranteed. The 2024 reduction to 5.84% and 2025 reduction to 5.2% proceeded on schedule. If commodity prices fall significantly or revenue underperforms, a later step could be deferred. Nebraska residents evaluating whether to stay or move should monitor annual legislative updates, as the rate trajectory meaningfully affects the financial case for remaining in the state.
Q
Does Nebraska's inheritance tax apply if I move out of state?
Nebraska's inheritance tax applies to Nebraska property regardless of where the deceased was domiciled at death. If a former Nebraska resident dies domiciled in Wyoming but owns Nebraska real estate, farm ground, or business assets located in Nebraska, those Nebraska-sited assets are subject to Nebraska inheritance tax when transferred to heirs. Immediate family members (children, grandchildren, parents) now pay 1% on Nebraska property above $100,000 per beneficiary (after LB 310 reform). Non-Nebraska property owned by someone domiciled outside Nebraska at death is not subject to Nebraska inheritance tax. This is an important estate planning consideration for Nebraskans who move out of state but retain Nebraska real estate or farm interests.
Q
How does Nebraska's property tax compare to Iowa and South Dakota?
Nebraska (~1.73%), Iowa (~1.57%), and South Dakota (~1.31%) all have significant property taxes. South Dakota is the lowest of the three and has no state income tax — making it the most tax-advantaged for high-income earners and high-property-value owners in the Great Plains region. Iowa's income tax is declining (Governor Reynolds's flat 3.9% target by 2026) but Iowa still has an income tax. Nebraska vs Iowa: Nebraska's declining income tax trajectory is competitive with Iowa's reform path; Nebraska's higher property tax is the main disadvantage vs Iowa. For Nebraska farmers with large tracts of agricultural land, property tax is often the dominant tax burden — and moving the legal domicile to South Dakota or Wyoming while retaining Nebraska farmland does not eliminate Nebraska property tax obligations.
Disclaimer:This guide provides general tax information for educational purposes only. Nebraska income tax rates are subject to revenue-trigger adjustments. Nebraska inheritance tax rules are subject to legislative change. This is not tax advice. Consult a CPA for Nebraska-specific tax planning.