NTF Issue Paper: Taxplan24.doc. 9-14.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
BACKGROUND. Retired citizens in Nebraska, especially those living on fixed incomes, find that taxes consume an increasing part of their household budgets, persuading many to move to other states having lower taxes. Kiplinger’s Magazine developed a retiree tax map to show the total tax burdens for a typical retired couple in each state plus D.C. Many erroneously believe that no state income taxes means lower overall taxes. The tax map includes sales, income, and property taxes. The study assumed an annual income of $60,000, of which $24,000 is Social Security benefits, $21,000 from pensions, $10,000 from IRA distributions, and $5,000 from taxable interest and dividends. The typical couple owns its own home and does not make mortgage payments.
NEBRASKA RETIREES. A typical retired couple in Lincoln, NE. pays about $994 per year in income tax, $2,345 in property tax, and $910 in sales tax, a total of $4,249 in taxes. Their median city house price is $115,180. For retirees, Nebraska rates 41st highest in retiree taxes of all 50 states and the District of Columbia. All surrounding states are cheaper for retirees to live, particularly Wyoming at #8 and Colorado at #10.1 The Bloomberg Wealth Manager studies income, personal property, real estate, tax, and consumption statistics, calculates the tax loads, then categorizes states according to wealth-friendliness for retirees. The study uses Quicken Turbo Tax programs from Intuit and other data. The top 10 states included Wyoming as #2 and Colorado as #8. Among the 10 worst states were Kansas at #49 and Nebraska at #50!
HIGH TAXES FOR SENIORS. Kiplinger’s rates Nebraska in the top 10 of least tax-friendly states for the retired. NE is only 1 of 14 states that taxes Social Security income. State income tax rates range from 2.46% to 6.84% on income over $29,000 for singles and over $58,000 for married joint filers. Changes in tax bracket thresholds in 2014 lowered tax bills slightly. Retiree homes assess at 100% of market value, except for ag land, assessed at 75% of market value. The only offset is a gradually rising homestead exemption for all or part of a home and a small property tax credit provided all real property based on valuation. Married couples with income of up to $31,000 are 100% exempt. NE has the 6th highest property tax ranking in the U.S. State sales tax is 5.5%. No break for government pensions. Nebraska fully taxes private pensions. Although NE has no estate tax, the inheritance tax administered by counties ranges from 1% for immediate relatives with a $40,000 exemption, to 13% for distant relatives with a $15,000 exemption, to 18% for all others, with a $10,000 exemption. Assets passing to a spouse or charity are exempt from this tax. It applies to bequests, transfers of property, or other interest in trust. The state calculates this tax on the fair market value of annuities, life estates, terms for years, and reversions.
TIDBITS OF ALLEVIATION. Bills passed by the 2014 Legislature. LB 986: Revenue Comm. To expand homestead tax exemption program to additional elderly and disabled Nebraskans and veterans. The bill increases the maximum eligible income from $28,500 to $46,900 for partial exemptions to married claimants older than 65. The maximum eligible income for partial exemptions to singles older than 65 will rise from $24,200 to $39,500. Married couples with income less than $34,701 will see a 100% exemption from property taxes. Those having developmental disabilities will become eligible.
LB 987: Revenue Comm. To annually index state income tax brackets for inflation, which NE never has done. Bracket creep gives taxpayers tax hikes, after their incomes rise into a higher tax bracket. The bill increases income tax exemptions for Social Security income for some citizens. Benefiting are married couples filing jointly who have $58,000 or less adjusted gross income; $43,000 or less for other tax returns. Military retirees can exempt 40% of military retirement income for 7 years or 15% for each year, beginning with the year the vet reaches 67, for those retiring after Jan. 1, 2015. 26 states do not tax retiree military pay.
LB 1087: Pirsch. To expand the homestead tax exemption to 100% of service-related disabled vets who have honorable or general discharges or their widows who do not qualify for it currently. Single widows and widowers of vets killed on active duty also are eligible. Their income and home value would not count in the equation.
TAKE ACTION NOW. Lobby your state senator now to sponsor and support legislation to exempt all private pension, Social Security, and military retirement income from state income taxation.
For contact information on state senators, email netaxpayers@gmail.com.
Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the NE Conservative Coalition Network. 9-14. C