Nebraska Tax Guide 2026: Flat 5.84% Income Tax, Social Security Exemption & Farm Tax

Nebraska enacted landmark income tax reform (Legislative Bill 754) in 2023 that reduced the top income tax rate from 6.84% to a flat 5.84% in 2024, with further reductions scheduled to reach 3.99% by 2027. The reform also included full Social Security exemption beginning in 2025, reversing Nebraska's previous partial taxation of Social Security benefits.

Nebraska's agricultural economy creates a unique property tax landscape: farmland values have increased significantly since 2020, and the interaction between agricultural property assessment and school district levy requirements is a persistent political issue in the state. Nebraska faces one of the highest agricultural property tax burdens in the Midwest.

Nebraska Income Tax Reform: From 6.84% to 3.99% Flat by 2027

Nebraska's LB 754 (2023) represents the most significant Nebraska tax reform in decades — reducing rates, flattening the structure, and phasing out Social Security taxation:

The 2027 target of 3.99% flat would make Nebraska competitive with Iowa (target 3.8%), Georgia (5.39% flat), and significantly better than Minnesota (9.85%) or Wisconsin (7.65%).

Social Security: Full Exemption from 2025

Nebraska previously taxed Social Security benefits for higher-income residents following the federal treatment. Under LB 754, Social Security benefits became fully exempt from Nebraska income tax beginning with the 2025 tax year. This is a meaningful benefit for Nebraska retirees — a couple with $50,000 in Social Security income previously might have paid $2,000–$4,000 in Nebraska tax on that income; from 2025, they pay nothing on those benefits.

Nebraska Standard Deduction

Nebraska uses the federal standard deduction amounts. The personal exemption credit is $148 per person (2024). Nebraska's taxable income starts from federal AGI with Nebraska adjustments.

Nebraska Property Tax: Agricultural Land Challenge and Urban/Rural Divide

Nebraska's 1.58% average effective property tax rate is significantly above the national average (0.99%) and reflects a structural challenge: the state funds approximately 36% of K-12 education through local property taxes, and the formula for distributing state education funding has not kept pace with rising property values in agricultural areas.

Property Tax by County

Nebraska Sales Tax: 5.5% with Grocery Exemption

Nebraska's 5.5% state sales tax is relatively moderate. Nebraska exempts groceries (food for home consumption, qualifying food items) — a favorable contrast to states like Mississippi or Alabama that tax groceries at full rates. Combined with local additions (Omaha city adds 1.5%, Lincoln adds 1.5%), total rates reach 7.0–7.5% in the state's major cities.

Nebraska Inheritance Tax (Not Estate Tax)

Nebraska does not have an estate tax but does have an inheritance tax — one of just 6 states with an inheritance tax. Nebraska's reform (LB 310, 2023) eliminated the inheritance tax for: (1) spouses, (2) parents, grandparents, children, grandchildren, and great-grandchildren (immediate family). As of 2023, the Nebraska inheritance tax applies to: distant relatives (aunts, uncles, cousins) at 1% on amounts above $40,000; non-relatives at 15% (reduced from 18%) on amounts above $25,000. For families with standard estate plans, the Nebraska inheritance tax is no longer a concern; for non-related heirs, it remains significant.