Nebraska's Top Income Tax Rate Is Set to Fall to 3.99% in 2027: What It Means for Retirement Income

By Justin Anderson, AAMS | Cambridge Advisors Inc. · November 2026

Under current law, Nebraska’s top two individual income tax brackets will be taxed at 3.99% for tax years beginning on or after January 1, 2027, down from 4.55% in 2026. The lower marginal rate can apply to taxable retirement withdrawals, pension income and Roth conversions.¹

That creates a timing question for the remaining months of 2026. But the state-rate difference is only part of the decision: moving income can also affect federal taxes, next year’s homestead exemption and Medicare premiums two years later.^{5, 6}

At a glance

Nebraska remains a graduated-tax state

Source: Neb. Rev. Stat. 77-2715.03. Current law retains four brackets, with the top two sharing one rate. The dollar thresholds adjust annually for inflation.¹

Where the lower rate applies

The lower rate applies to Nebraska taxable income after applicable additions, subtractions and deductions. It does not apply to every dollar received or every dollar withdrawn from an investment account.^2–4

Sources: final 2026 and 2027 Forms 1040N-ES. These schedules are for estimating payments, not preparing a tax return. Standard deductions shown are base amounts; eligible taxpayers age 65 or older and/or blind may qualify for additional amounts. Other limitations can apply.^{2, 3}

For a single filer, the affected brackets begin above $24,760 in 2026 and $25,570 in 2027. These are Nebraska taxable-income thresholds, not gross-income thresholds.^{2, 3}

How common retirement income is treated

This is a summary, not an exhaustive list. CSRS and FERS are different federal retirement systems. A CSRS exclusion does not create a blanket exclusion for FERS annuities. Qualified Roth distributions must satisfy the applicable qualification rules.^{4, 8; long-form guide, Appendix A}

What is the change worth?

The table compares estimated Nebraska income tax at the same assumed taxable-income levels for a married couple filing jointly. It uses the published estimated-tax schedules for each year, before credits. The difference includes the lower rate and inflation adjustments to the brackets.^{2, 3}

Hypothetical tax illustration only. Married filing jointly; the same Nebraska taxable income in both years, after adjustments and deductions; before personal exemption and other credits; rounded to the nearest dollar. No investment returns, advisory results or actual client outcomes are shown. These estimated-tax schedules are not return-preparation tables. Actual liability depends on the applicable return instructions and household circumstances.

The marginal-rate comparison

If an additional $10,000 of taxable income falls entirely within the affected brackets in each year, Nebraska tax attributable to those dollars is $455 at 4.55% and $399 at 3.99%: a $56 difference. For $50,000, the difference is $280. This isolates the rate change and excludes other effects.¹

A smaller state bill can come with other costs

A conversion, withdrawal or realized gain can increase federal tax, reduce an income-based deduction, affect homestead relief or move a household into a higher Medicare premium tier. Compare those effects before moving income between years.^{5, 6, 9}

The same income can affect three different years

*General timing under current rules. Homestead income tests apply only to relevant categories and eligible households; actual relief also depends on other requirements. Medicare generally uses federal AGI plus tax-exempt interest from two years earlier, with exceptions. Confirm thresholds for the year affected.^{5, 6}

For households near the homestead income limits, added taxable conversion income can reduce the following year’s property-tax relief. Nebraska’s lower income-tax rate does not change that separate household-income calculation.⁵

Three timing questions for the rest of 2026

1. Should a Roth conversion wait until January?

Waiting could reduce the Nebraska tax attributable to a conversion if the same taxable amount falls entirely within the affected brackets in both years. It does not establish that waiting lowers the total cost.

Compare your expected federal brackets in both years, remaining years before required distributions, Medicare premium tiers, possible homestead relief, the phaseout of any eligible federal senior deduction, and the money available to pay the conversion tax. A completed Roth conversion cannot be reversed.^5–9

If tax payments require selling appreciated investments, the sale can create additional taxable gains. Paying tax from retirement-account funds also leaves less to convert. Those effects belong in the comparison.

The distribution year matters. For a traditional-IRA-to-Roth conversion, taxable income generally belongs to the year the money leaves the traditional IRA, including a distribution rolled into a Roth within 60 days in the following year. A December 2026 distribution does not become 2027 income merely because the Roth deposit occurs in January. Confirm timing and processing deadlines with your custodian and tax preparer.⁸

2. I turn 73 in 2026. Can my first RMD wait?

A traditional IRA owner who turns 73 in 2026 generally may take the first required minimum distribution (RMD) as late as April 1, 2027. The second RMD is due by December 31, 2027. Delaying therefore places both distributions in 2027. Different timing rules can apply to workplace plans.⁷

Two taxable RMDs in one year can raise federal income tax, reduce income-based deductions or homestead relief, and affect Medicare premiums generally two years later. Those costs may exceed the state-rate savings. An RMD cannot itself be converted to a Roth IRA; satisfy the applicable IRA RMD before converting additional amounts.^5–9

3. What about investment gains or other income I control?

Realizing a gain in January rather than December generally shifts the taxable gain to the next year. Only the taxable gain counts, not the full proceeds of the sale. The lower Nebraska rate may help, but waiting also leaves you exposed to market movement. Federal capital-gains taxes, portfolio concentration, liquidity needs and transaction costs may matter more.

Income recognized in 2026 generally remains 2026 income. A distribution required by December 31, 2026 cannot be deferred simply to obtain the lower state rate. The first-RMD exception above has its own deadline.^{7, 8}

For a broader discussion, see Retirement Income Planning in Nebraska, especially Chapters 1, 3 and 6. The long-form guide compares federal taxes, Medicare, homestead relief and withdrawals together.

Look at 2026 and 2027 together

What is Nebraska’s income tax rate in 2027?

Under current law, the four individual brackets have rates of 2.46%, 3.51%, 3.99% and 3.99%. The top rate in 2026 is 4.55%. The 2027 estimated-tax form is final; it is not a draft.^{1, 3}

Is Nebraska becoming a flat-tax state?

No. The first two brackets retain their lower rates. Sharing a rate across the top two statutory brackets does not make the entire system a flat tax.¹

What does this rate change leave unchanged?

This rate reduction does not itself change federal tax rules, Nebraska’s Social Security or qualifying military and CSRS subtractions, county inheritance tax, or the homestead household-income rules. Investment and withdrawal decisions can still affect those separate calculations.^{1, 4, 5}

Current status

Checked October 29, 2026: the 3.99% rate is enacted for tax years beginning on or after January 1, 2027. Nebraska DOR has published final Form 1040N-ES for 2027, Rev. 9-2026. Use it to estimate payments; use the applicable final return instructions and tax tables when filing. Future legislation can change the law.^{1, 3}

A planning conversation

If you would like to discuss how these timing questions fit your retirement income plan, contact Cambridge Advisors. Work with your tax preparer on the tax calculation and your county assessor on homestead eligibility.

Important disclosures

This article is provided by Cambridge Advisors Inc. for informational and educational purposes. It is not individualized investment, tax, legal or accounting advice, or a recommendation to buy, sell or hold a security or pursue a particular strategy. Cambridge Advisors does not provide tax or legal advice.

Examples are hypothetical tax illustrations, not actual client results, investment performance or guarantees. Actual consequences depend on individual facts, deductions, credits, income-recognition years and applicable law. Investment decisions involve risk, including possible loss of principal.

Information was checked October 29, 2026 and may change. Consult your tax adviser before deciding on conversions, distributions or the timing of gains. Future homestead and Medicare thresholds must be checked for the applicable year.

Cambridge Advisors Inc. is a fee-only SEC-registered investment adviser in Omaha, Nebraska. Registration does not imply a particular level of skill or training. Information about advisory services, fees and conflicts is available in Form ADV and Form CRS at adviserinfo.sec.gov. References to government publications do not imply government endorsement.

Sources and reader references

Primary sources checked October 29, 2026. Bracket and deduction figures come from the final estimated-tax forms; those forms expressly prohibit using their rate schedules to prepare a tax return.

1. Nebraska Revised Statute 77-2715.03. Nebraska Legislature; current enacted law; subsections (2)(b), (2)(c), (3).
2. 2026 Form 1040N-ES. Nebraska Department of Revenue; Rev. 11-2025; worksheet p. 4, standard deduction p. 5, rate schedule p. 6.
3. 2027 Form 1040N-ES. Nebraska Department of Revenue; final estimated-tax form, Rev. 9-2026; worksheet p. 4, standard deduction p. 5, rate schedule p. 6. Listed on DOR final-forms page, updated September 25, 2026.
4. Nebraska Revised Statute 77-2716. Nebraska Legislature; current enacted law; subsections (1), (14), (15)(b), (20).
5. 2026 Form 458, Schedule I - Income Statement and Instructions. Nebraska Department of Revenue; Rev. 1-2026; pp. 1-3.
6. POMS HI 01101.010 - Modified Adjusted Gross Income. Social Security Administration; revised December 2, 2025; section A.
7. Retirement plan and IRA required minimum distributions FAQs. Internal Revenue Service; Q3 and Q12, updated December 10, 2024.
8. Publication 590-A (2025), Contributions to Individual Retirement Arrangements. Internal Revenue Service; sections on conversions, income, required distributions and cross-year rollovers.
9. Publication 554 (2025), Tax Guide for Seniors. Internal Revenue Service; enhanced senior deduction and taxable Social Security sections.