Military Retirement Income Tax Exclusion Proposed
Nebraskans could exclude all of their military retirement benefit pay from state income tax under a bill heard last Friday by the Revenue Committee.
Sen. Tom Brewer of Gordon, who introduced Legislative Bill 387 at the request of Gov. Pete Ricketts, said the bill would expand an exclusion the Legislature approved last year.
Beginning in taxable year 2022, individuals may exclude 50% of their military retirement benefit income to the extent it is included in federal adjusted gross income. LB 387 would allow individuals to exclude 100% of that income.
The state Department of Revenue estimates that the bill would reduce state income tax revenue by approximately $13 million in fiscal year 2022-23, $13.7 million in FY23-24 and $14.4 million in FY24-25.
Brewer said the change would make Nebraska more ing those highly trained and skilled workers, he said.
“The income tax exemption is not only an obvious way of expressing gratitude to our armed forces and veterans,” Brewer said. “This bill helps us keep pace with our neighbors and stop missing out on opportunities to attract these outstanding groups of individuals to grow and enrich Nebraska.”
Additionally, the change would show the U.S. government that Nebraska is a military-friendly state, he said.
The governor testified in support of the bill. He said five of the six surrounding states do not tax military retirement pay, including Iowa and South Dakota, which have seen their military retiree populations grow at a much faster rate than Nebraska’s.
Bryan Slone, president of the Nebraska Chamber of Commerce and Industry, also testified in support. He said LB 387 would help Nebraska address an acute skilled labor shortage, which he called the state’s greatest economic challenge of the decade.
“There’s no greater and more important group of skilled personnel and future community leaders that we need to attract and retain to this state than our military personnel when they return to private life,” Slone said.
The Unicameral Information Office is operated by the Clerk of the Legislature. Find additional coverage at update.legislature.ne.gov.
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