Nebraska is in the middle of one of the most aggressive state income tax reform programmes in the country. As recently as 2022, Nebraskans faced a top marginal rate of 6.84% across four graduated brackets. Legislative Bill 754 (signed 2023) set a legislated glide-path that has already driven the top rate down to 5.20% for 2026, with a final destination of 3.99% flat by 2027.
For 2026, Nebraska retains a four-bracket structure — but the brackets themselves are becoming less consequential each year as rates compress toward that flat target. Alongside the rate cuts, Nebraska has fully eliminated the taxation of Social Security benefits ahead of its original schedule. Retirees who previously faced Nebraska tax on their Social Security income now owe nothing on those benefits, regardless of income level.
The main counterweight to Nebraska's improving income tax picture is its property tax burden. With an effective average rate of approximately 1.73%, Nebraska ranks among the highest-property-tax states in the Midwest — a meaningful cost for homeowners, farmers, and potential relocators to factor into any tax comparison.
For tax year 2026, Nebraska uses four graduated brackets. The structure applies separately to single filers and married filing jointly (MFJ) couples, with MFJ thresholds exactly doubling the single thresholds.
| Taxable Income | Rate |
|---|---|
| $0 – $3,700 | 2.46% |
| $3,701 – $22,170 | 3.51% |
| $22,171 – $35,730 | 5.01% |
| Above $35,730 | 5.20% |
| Taxable Income | Rate |
|---|---|
| $0 – $7,390 | 2.46% |
| $7,391 – $44,340 | 3.51% |
| $44,341 – $71,460 | 5.01% |
| Above $71,460 | 5.20% |
Nebraska starts with federal adjusted gross income (AGI) and applies Nebraska-specific modifications. Key adjustments include: Social Security benefits deducted in full (fully exempt for 2026); a $160 personal exemption credit per exemption (this is a credit against tax owed, not a deduction from income); and the federal standard deduction ($14,600 single / $29,200 MFJ) applied to reach Nebraska taxable income.
Here is exactly how Nebraska tax is calculated for a single filer with $100,000 in gross income for 2026:
Note that the effective rate of 3.84% is well below the top marginal rate of 5.20% — because most income falls in the lower brackets, and the large standard deduction shelters the first $14,600.
Nebraska's LB 754, signed by Governor Jim Pillen in 2023, represents the most significant restructuring of Nebraska income tax in modern history. The bill legislated a specific, year-by-year reduction schedule with a 3.99% flat rate as the endpoint:
| Tax Year | Top Rate | Structure |
|---|---|---|
| 2022 and prior | 6.84% | Four graduated brackets |
| 2023 | 6.27% | Four graduated brackets |
| 2024 | 5.84% | Four graduated brackets |
| 2025 | 5.20% | Four graduated brackets |
| 2026 | 5.20% | Four graduated brackets (current year) |
| 2027 | 3.99% | Flat rate — final target |
Note: The rate reduction schedule is tied to revenue triggers in LB 754. If Nebraska general fund revenues fall below specified thresholds, the schedule can pause. To date, Nebraska revenues have been sufficient to maintain the reduction path on schedule.
The stated motivation for LB 754 is economic competitiveness. Nebraska faces proximity to South Dakota — which has no income tax at all — and competes with Iowa (now 3.8% flat), Kansas (5.7%), and Missouri (4.7% top rate) for residents and businesses. The 3.99% flat target would position Nebraska as one of the more competitive income-tax states in the Great Plains region.
When the flat rate kicks in for tax year 2027: (1) the four-bracket structure disappears — all Nebraska taxable income will be taxed at a single 3.99% rate; (2) the difference between a worker earning $40,000 and one earning $200,000 will simply be proportional — no bracket cliffs; (3) planning around bracket thresholds becomes irrelevant for Nebraska purposes.
At $100,000 single for 2027 under 3.99% flat: $100,000 − $14,600 = $85,400 taxable × 3.99% = $3,407.46, minus $160 credit = approximately $3,247 — a further saving of about $594 versus the 2026 bill.
Nebraska's treatment of Social Security income has been one of the most significant stories in Nebraska tax policy over the past several years. Here is the full timeline:
For a retired Nebraska couple receiving $40,000/year in combined Social Security benefits: under the old system, up to $34,000 (85% of $40,000) could have been included in Nebraska income and taxed at the then-applicable rate. At the 2022 top rate of 6.84%, that was potentially $2,326 in Nebraska tax on Social Security alone. Today, that bill is $0.
Nebraska's retirement income exemption is more limited than states like Iowa (which fully exempts all retirement income). For 2026:
This is a meaningful distinction from Iowa, which fully exempts all retirement income for residents 55+. A Nebraska retiree drawing $80,000 from a 401(k) will owe Nebraska income tax on that full amount (after standard deduction). Nebraska's overall retirement picture is improving, but it has not yet reached Iowa's level of retirement tax friendliness.
Nebraska's income tax improvements are real — but the property tax burden is the counterpoint that every Nebraskan, potential relocator, and retiree must understand. Nebraska's effective average property tax rate of approximately 1.73% is among the highest in the Midwest and significantly above the national average of roughly 1.1%.
| County / City | Effective Rate | Annual Tax on $300,000 Home |
|---|---|---|
| Douglas County (Omaha) | ~1.69% | ~$5,070 |
| Lancaster County (Lincoln) | ~1.75% | ~$5,250 |
| Sarpy County (Papillion/Bellevue) | ~1.68% | ~$5,040 |
| Buffalo County (Kearney) | ~1.52% | ~$4,560 |
| Hall County (Grand Island) | ~1.63% | ~$4,890 |
Nebraska's above-average property taxes stem from structural factors: the state has over 500 school districts, many small rural ones, each requiring a local levy; Nebraska funds approximately 36% of K-12 education through local property taxes; and the state's formula for distributing school aid has not kept pace with rising property values. Agricultural land — which has seen sharp value appreciation since 2020 — bears a particularly heavy burden.
Nebraska has enacted multiple property tax relief measures, including the Property Tax Credit Relief Fund (a credit programme that provides hundreds of millions in annual relief to property owners). Additionally, homestead exemptions are available for seniors (65+), veterans with service-connected disabilities, and disabled individuals. However, even with these programmes, Nebraska's effective rates remain elevated relative to most neighbouring states.
For a homeowner earning $100,000 and owning a $300,000 home in Omaha: Nebraska income tax ~$3,841 + property tax ~$5,070 = total state/local burden of approximately $8,911. This is a useful framing: Nebraska's improving income tax situation is partially offset by one of the heavier property tax loads in the region. Renters face the income tax without the direct property tax exposure, making Nebraska's tax picture more favourable for them than for homeowners.
Nebraska does not offer a preferential rate for capital gains. Long-term capital gains are taxed as ordinary income — added to your Nebraska taxable income and subject to the same bracket rates as wages. For 2026, a single filer with $85,400 in taxable income including capital gains pays 5.20% on gains in the top bracket. There is no Nebraska equivalent of the federal 0%/15%/20% capital gains rate structure.
Nebraska conforms to the federal standard deduction:
These amounts reflect 2026 figures (subject to annual inflation adjustment at the federal level). Nebraska does not add its own state standard deduction on top of the federal figure — it simply adopts the federal amount.
Nebraska provides a personal exemption credit of $160 per exemption. This is a credit against tax owed (reducing your bill directly), not a deduction from income. A single filer with no dependents gets one $160 credit. A married couple gets two credits ($320 total). Each qualifying dependent adds another $160 credit. This is modest compared to the old federal personal exemption system, but every $160 represents real tax savings.
Nebraska's state sales tax rate is 5.5%. Local governments can add additional rates:
Nebraska exempts unprepared groceries (food for home consumption) from the state sales tax — a meaningful benefit for families. Prescription drugs are also exempt. Restaurant meals and prepared food are taxable at the full combined rate.
Nebraska has no city or county income tax. Unlike states such as Ohio, Pennsylvania, Kentucky, or New York — where residents in major cities face additional local income taxes on top of state taxes — Omaha and Lincoln residents pay only Nebraska state income tax (and federal). This is a meaningful advantage for Omaha residents compared to, for example, Kansas City, Missouri residents who pay both state and 1% city income tax.
Nebraska has no estate tax, but it does have an inheritance tax — one of just six US states that still imposes one. Following 2023 reform (LB 310), the inheritance tax was eliminated for immediate family (spouses, children, grandchildren, parents, grandparents). It still applies to: distant relatives (aunts, uncles, cousins) at 1% on amounts above $40,000; and non-related beneficiaries at 15% on amounts above $25,000. For most Nebraska families, the inheritance tax is no longer a concern — but non-family beneficiaries of larger estates should be aware.
For workers and retirees in the Great Plains region, Nebraska's three nearest reference points for tax comparison are Iowa, South Dakota, and Kansas. Here is how they stack up for a single filer earning $100,000 in 2026:
| State | Income Tax at $100K (single) | Effective Rate | Avg Property Tax | Social Security Exempt? | Sales Tax (typical) |
|---|---|---|---|---|---|
| Nebraska | ~$3,841 | 3.84% | ~1.73% | Yes (fully) | ~7.0–7.25% |
| Iowa | ~$3,230 | 3.23% | ~1.57% | Yes (fully) | ~7.0% |
| South Dakota | $0 | 0% | ~1.14% | N/A | ~6.4% |
| Kansas | ~$4,820 | 4.82% | ~1.41% | No (partially taxed) | ~8.7–9.5% |
Income tax estimates after applicable standard deductions. Effective rates vary by filing status and income composition. All figures approximate.
Omaha has emerged as a meaningful tech and finance hub — home to several Fortune 500 companies (Berkshire Hathaway, Union Pacific, Mutual of Omaha, TD Ameritrade / Schwab) and a growing startup scene. Remote workers choosing Omaha benefit from: no local income tax; Nebraska's improving state income tax rates; significantly lower cost of living than coastal cities; and a relatively affordable housing market (median home ~$270,000 as of mid-2026). The main tax drawback for Omaha homeowners remains the ~1.69% effective property tax rate, which translates to roughly $4,500–6,000/year depending on home value. For remote workers renting rather than owning, Omaha's tax picture is considerably more attractive — they enjoy the income tax improvements without the direct property tax exposure.
Nebraska's move to a 3.99% flat rate in 2027 creates meaningful planning opportunities for some taxpayers:
Nebraska's exemption of Social Security simplifies retirement income tax planning significantly. However, the taxability of pension and 401(k)/IRA income means Nebraska retirees with significant withdrawal needs still face a meaningful state income tax burden. Strategies to consider:
Nebraska homeowners should ensure they have applied for all available property tax relief:
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Nebraska's LB 754 rate reductions, Social Security exemption, retirement income planning, and property tax relief create real tax-planning opportunities. TaxHub connects you with licensed CPAs who understand Nebraska tax law.
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