The Nebraska Legislature passed landmark legislation April 7 to eliminate state income taxes on Social Security benefits. Gov. Pete Ricketts has signed the bill into law.
The Social Security tax exemption included in Legislative Bill 873 will phase out the state income tax on benefits by 2025. The measure speeds up the timeline from 2030 for removing the tax in a bill passed last year.
“This is a momentous decision by the Legislature that strengthens the financial security of older Nebraskans. AARP has long fought to lessen the burden of state tax on Social Security beneficiaries, and this bill fulfills that goal. Starting in 2025, Nebraska retirees will no longer pay state tax on their Social Security benefits that they’ve paid into over the course of their working lives,” said Todd Stubbendieck, state director of AARP Nebraska.
“The extra income will help support Nebraska’s retirees so they can live their retirement years with dignity and independence. They will be able to keep more of their hard-earned Social Security to pay for the ever-growing cost of prescription drugs, food, gas 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. “Most retirees don’t really have a way to increase their income as costs on just about everything continue to rise. Exempting their Social Security from state tax will provide much-needed financial relief.”
Nebraska is one of just 12 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 $59,960 (married couple) and $44,460 (single) are currently exempt from paying state tax on their benefits.
Then in 2021, the Legislature passed LB 64 to first reduce state taxation of benefits by half over five years. At that point, the Legislature was set to review the tax break and decide whether to fully eliminate the tax by 2030.
LB 873 goes further by decisively ending the tax in 2025. Another bonus is that older Nebraskans will see a larger, immediate reduction in state tax on their Social Security income with a 40% exemption in 2022, 60% in 2023, 80% in 2024 and 100% in 2025.
AARP Nebraska thanked state lawmakers for their votes to phase out the tax and Gov. Pete Ricketts for his support for eliminating the tax this session.
As of 2020, 345,725 Nebraskans receive Social Security benefits. Of that number, more than 250,000 are retirees. Nearly 55% of Nebraska beneficiaries rely on Social Security for half or more of their income, and about 28% rely on Social Security for at least 90% of their income.