TAX BURDEN ON NEBRASKA RETIREES

NTF issue paper: taxplan20.doc.  10-13.

NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
REPEAL INCOME TAX ON NEBRASKA RETIREMENT INCOME. 

BACKGROUND.  Nebraska retirees find themselves at a financial disadvantage compared to retirees in other states.   Facing continuing high property taxes, their savings suffer further losses from taxation on retirement income.  Older Nebraskans face state income taxes on their Social Security payments and military retirement pensions.

COMPARISON.  The majority of states levying a state income tax allow retirees to exclude a part or all of the income from SS payments, private and military pensions, or both.  Nine states exempt all federal, military, and state pensions plus SS checks from income tax. Ten states exclude all federal, state, and local pension income from income taxes, including neighboring state Kansas.   Pennsylvania and Mississippi exempt all retirement income, including IRAs and 401(k) payments.  The District of Columbia and 27 states exclude all SS payments.  Only Nebraska and 6 other states tax SS income as taxed by the federal government.  Examining states adjacent to Nebraska, Iowa and Kansas tax SS income only above a specific level. Kansas retirees can exclude SS income, if adjusted gross income is less than $75,000.  Kansas does not exclude private sector retirement income.   Iowa will completely phase out its SS tax levy by 2014.  Missouri phased out its SS tax levy in 2012.  It has a public pension exclusion that covers a part of pension income.   Neighboring Colorado offers a retirement income exclusion or credit that sometimes results in exclusion from taxes of part or all of SS benefits.  It permits those 55-64 to exclude $20,000 of SS and other qualified retirement income.  Those over 65 can exclude $24,000.  South Dakota attracts retirees, because it boasts a very attractive retiree tax structure, diversified economy, and low cost of living.  States have little federal restriction on deciding how to tax pensions.  However, state tax policy cannot discriminate against federal civil service pensions.  Only 5 states, including Nebraska, allow no exemptions or tax credits for pension and other retirement income counted in federal adjusted gross income, although NE exempts railroad retirement benefits.  NE fully taxes out of state government pensions also.  Our state taxes all retirement income at relatively high rates.[1]

MILITARY PENSIONS.  Federal law forbids states from taxing U.S. military retiree benefits, if states exempt the pensions of state and local government retirees.  Most states having an income tax exempt at least part of pension income from taxable income.  Different categories of pension income, e.g., private, military, federal civil service, often see different treatment for taxation purposes.  Several states offer special tax privileges to military retirees; others follow  federal tax rules.  Of adjacent states, Kansas,  South Dakota, and Wyoming do not tax military retiree payments.
In Colorado, those 55-64 years old can exclude up to $20,000 of military retirement benefits received during a calendar year.  Those 65 or older can exclude up to $24,000.  Iowans  55  and older or disabled, or surviving spouses, can exclude up to $10,000 in joint returns and up to $5,000 in other returns of military retirement pay.  Missouri military retirees can exempt 45% of military pension income from state income tax.  This deduction will increase 15% annually until 2016, when all military pension income will become tax-exempt.

2013 LEGISLATIVE BILLS.

LB 5: Krist.  To exempt Social Security payments included in federal adjusted gross income from state income tax.  To exempt military retirement benefits included in federal adjusted gross income from state income tax.

LB 74: Janssen.  To exempt Social Security payments included in federal adjusted gross income from state income tax.

LB 75: Janssen.  To exempt military retirement benefits included in federal adjusted gross income from state income tax, excluding up to $48,000 per married couple filing jointly, if both spouses are receiving benefits, or $24,000 per tax year for other returns.

LB 176: Smith.  Exempt military retirement benefits from state income taxation, prorated from 10% in tax year 2014 to 100% in tax year 2023 and thereafter.

LB 227: Kintner.  By 2016, to exempt all retirement benefits from state income tax.

TAKE ACTION NOW.  Every year, Nebraska loses retirees who move to states having more friendly tax climates for older citizens with limited incomes.  This incentive joins with the wish by some retirees to live closer to children and grandchildren.   Contact your state senator immediately to co-sponsor and support 2014 legislation to end state income taxes on all retirement income.  For state senator contact information, email netaxpayers@gmail.com.

Kiplinger:  Nebraska among 10 least tax-friendly state to retirees.

Research, documentation, and analysis for this issue paper done by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the Nebraska Conservative Coalition Network.  10-13.   C

 

 


[1] RetirementLiving.com.

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