Nebraska retired pay

Is military retirement taxed in Nebraska?

Not taxed

100% Excluded Since Tax Year 2022.

No. For tax years beginning on or after January 1, 2022, Neb. Rev. Stat. § 77-2716(15)(b) lets you exclude 100% of military retirement benefits included in federal AGI. The old one-time election on Form 1040N-ML is gone, but the exclusion is not automatic: you enter the amount on Form 1040N, Schedule I, line 32.

The law: Neb. Rev. Stat. § 77-2716(15)(b)
Current rule since: tax year 2022 (100%, no election); 2015 through 2021, a one-time election to exclude 40% for seven consecutive years or 15% for every year from age 67
Where you claim it: Form 1040N, Schedule I, line 32 (Military retirement benefits), which totals on Schedule I, line 44 and carries to Form 1040N, line 13

Read on Nebraska’s own sources October 9, 2026

What Nebraska’s rule is worth on your retired pay

Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at Nebraska’s top 4.55% rate for tax year 2026; change it to your own bracket if you know it.

One rate applied to the whole amount, not Nebraska’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.

How it works in Nebraska

Copy the military pension amount included on line 5b of your federal Form 1040 onto Form 1040N, Schedule I, line 32. Part B of Schedule I totals on line 44, which carries to line 13 of Form 1040N as an adjustment decreasing federal AGI. Paper filers attach pages 1 and 2 of the federal Form 1040, or pages 1 through 3 of Form 1040-SR.

No election remains. From 2015 through 2021, § 77-2716(15)(a) required a one-time election within two years after retiring, made on Form 1040N-ML, to exclude 40% of the pay for seven consecutive years or 15% for every year starting at age 67. The Department's FAQ says Form 1040N-ML should no longer be submitted and that every military retiree, including one who never elected, gets the 100% exclusion.

A retiree who waived military retired pay to fold the service into a civil service annuity gets a 1099-R from the Office of Personnel Management instead of DFAS. The exclusion still reaches the share of that annuity attributable to uniformed service. You compute the share and attach government documentation of the split, such as the Standard Form 50 electing civil service retirement, as the FAQ describes.

If a 2023 or 2024 Nebraska return left line 32 empty, an amended return can still claim the refund inside the booklet's window: three years from the due date, the extended filing date or the date filed, or two years from payment, whichever is later. A 2022 return filed by its April 2023 due date ran out in April 2026. For 2023 or 2024, use that year's Form 1040XN, Amended Nebraska Individual Income Tax Return. Starting with tax year 2025, the amended return is Form 1040N with the Amended Return box checked, and it can be e-filed.

At the 5.20% top rate for 2025, the exclusion on an assumed $36,000 pension is worth about $1,872 a year. Under § 77-2715.03 the top rate drops to 4.55% for 2026 and 3.99% from 2027, so the same exclusion saves about $1,638 at the 2026 rate. The Department's draft 2026 Tax Calculation Schedule, dated August 17, 2026, prints the same 4.55%.

Survivor Benefit Plan annuities

Not addressed. § 77-2716(15)(c) defines a military retirement benefit as periodic payments attributable to uniformed service "for personal services performed by an individual prior to his or her retirement," and neither the Department's Military Retirement Benefits Exclusion FAQ nor the 2025 line 32 instructions mention Survivor Benefit Plan annuities. Ask the Department before excluding an SBP annuity.

Active-duty pay in Nebraska

Taxed for Nebraska residents: the 2025 booklet says Nebraska tax is imposed on the total federal AGI of a resident member of the uniformed services, wherever it is received. Nebraska National Guard members exclude Title 32 and state active duty pay for 2025 and 2026 on Schedule I, line 41, and § 77-2716(21) adds Title 10 duty from 2027.

Missed it in an earlier year?

An amended return claiming a refund must be filed within three years of the due date, the filing date under an approved extension, or the date the original return was filed, or within two years from the time the tax was paid, whichever is later (2025 Nebraska Individual Income Tax and Amended Return Booklet).

What trips Nebraska retirees up

"No form" is half true. The FAQ's line that no election or form submission is needed refers to the retired Form 1040N-ML. The pension is part of federal AGI, so it stays taxable in Nebraska unless the amount goes on Schedule I, line 32.
Coast Guard, Public Health Service and NOAA Corps retirees can qualify. The 2025 line 32 instructions say their retired pay may be reported by a payer other than the Defense Department or OPM, and they name a 1099-R from the Coast Guard Pay and Personnel Center as one that qualifies.
Line 32 and line 38 are different exclusions. Line 38 is for Civil Service Retirement System annuities only, and the instructions say FERS annuities do not qualify there; the uniformed-service share of an OPM annuity belongs on line 32, with documentation.
The Guard pay exclusion on line 41 is narrow. It covers Nebraska National Guard members only, for Title 32 duty, dual-status technician pay and state active duty, and the 2025 instructions say Title 10 pay and other states' Guard pay cannot be excluded.

Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. Nebraska’s other servicemember protections are on the Nebraska SCRA page.

Frequently asked questions

Does Nebraska tax military retirement?

No, starting with tax year 2022. Neb. Rev. Stat. § 77-2716(15)(b) lets an individual exclude 100% of military retirement benefit income to the extent it is included in federal adjusted gross income (statute read October 9, 2026). You claim it on Form 1040N, Schedule I, line 32, entering the military pension amount from line 5b of your federal Form 1040. From 2015 through 2021 the exclusion was 40% for seven years or 15% from age 67, and only for retirees who elected it within two years of retiring.

Do I need Form 1040N-ML to exclude military retirement in Nebraska?

No. The Nebraska Department of Revenue's Military Retirement Benefits Exclusion FAQ says that for tax years beginning on or after January 1, 2022, no election or form submission is needed, and Form 1040N-ML should no longer be submitted. That does not make the exclusion automatic. The 2025 Form 1040N instructions tell you to enter the military pension on Schedule I, line 32, and paper filers attach pages 1 and 2 of the federal Form 1040. Retirees who never made the old election qualify the same as those who did.

Is SBP taxed in Nebraska?

Nebraska's guidance does not say. Neb. Rev. Stat. § 77-2716(15)(c) defines the excluded benefit as periodic payments attributable to service in the uniformed services for personal services performed by an individual prior to his or her retirement, and the exclusion applies to benefit income received by such individual (read October 9, 2026). The Department's FAQ and the 2025 Schedule I, line 32 instructions do not mention Survivor Benefit Plan annuities. A surviving spouse should get the Department's answer before excluding an SBP annuity on line 32.

Sources, read October 9, 2026

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