State Sen. Brett Lindstrom of Omaha pushed Thursday for state tax reform that would be “more friendly for our retirees,” championing a proposal for phased-in exemption of Social Security benefits from the state income tax.
“We do have an aging demographic in our state,” Lindstrom told the Legislature’s Revenue Committee, and “competitive tax policy is needed” as one incentive to help encourage retirees to continue living here.
Under his proposal, Legislative Bill 64, Social Security tax exemptions would begin with a 20% state income tax deduction in the 2021 tax year, expanding to full deduction of Social Security benefits by 2025.
Loss of state revenue is estimated at $31.9 million in fiscal 2021-22, rising to an estimated $138.5 million in 2026-27.
Jina Ragland, associate state director for advocacy and outreach with AARP Nebraska, supported the proposal and told the committee that Nebraska now is one of only 13 states that tax Social Security income.
Among others are the bordering states of Colorado, Kansas and Missouri.
Some 345,000 Nebraskans currently are receiving Social Security benefits, Ragland said.
The committee also heard testimony on LB 237, a more modest alternative to phase in Social Security tax benefits for Nebraskans.
That bill is more targeted to “help those really in need,” Sen. Tom Brewer of Gordon told the committee.
“A lot of people live on Social Security in small towns in Nebraska,” he said, without many opportunities to increase their income.
Lindstrom told the committee he is open to consideration of some of the more limited aspects of the Brewer bill, which would place an income cap on eligibility for the tax break. That proposal sets those limits at $95,000 for a married couple and $80,000 for a single taxpayer.
Neither bill attracted opposition testimony during the public hearing.