VICTORY: Nebraska begins phasing out state tax on Social Security benefits

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The Nebraska Legislature has passed a landmark bill to phase out state income taxes on Social Security benefits over 10 years. Gov. Pete Ricketts signed the bill into law on May 26.

LB 64 – strongly backed by AARP - would first reduce state taxation of benefits by half over five years. At that point, the Legislature will review the tax break to ensure that the state has the revenue to eliminate all state tax on Social Security income by 2030.

“AARP has long fought to lessen the burden of state tax on Social Security beneficiaries, and this bill is a giant step forward.  LB 64 will help support Nebraska’s retirees so they can live their retirement years with dignity and independence,” said Todd Stubbendieck, state director of AARP Nebraska. “They will be able to keep more of their hard-earned Social Security to pay for the ever-growing cost of prescription drugs, food and utility bills – or to care for their own loved ones.”

The bill will also provide additional income security that older Nebraskans need, to live in their own homes and communities as they age, near family and friends.  Nebraskans age 50 and older account for 56 cents of every dollar in state consumer spending – generating an annual economic impact of $50 billion. They also contribute over $2 billion each year in unpaid family caregiving.

“Many middle-income seniors on fixed incomes are strongly contributing and supporting the economy in Nebraska while still paying taxes on their Social Security benefits,” Stubbendieck said.

Nebraska is one of just 13 states that taxes Social Security income. In 2014, the Nebraska Legislature started on a path toward exempting Social Security benefits from state income taxation.

Beneficiaries with incomes below $59,100 (married couple) and $44,460 (single) are currently exempt from paying state tax on their benefits. That exemption will continue under LB 64.

The gradual elimination of state taxes will begin with a reduction of 5% for this year, 20% in 2022, 30% in 2023, 40% in 2024 and 50% in 2025. If approved by the Legislature after five years, the phaseout will expand to 100% by 2030.

Sen. Brett Lindstrom introduced LB 64, Sen. Mark Kolterman named the bill a priority for this session and Revenue Committee Chair Sen. LouAnn Linehan worked to move the bill forward. Stubbendieck praised their leadership in building a consensus to pass the measure.