New tax law allows full exclusion of military retirement benefits starting January 2022

On January 15, 2025, the Nebraska State Legislature introduced Legislature Bill 151, a significant piece of legislation aimed at providing substantial tax relief for military retirees. The bill proposes a complete exclusion of military retirement benefits from state income tax for individuals who receive such benefits, effective for taxable years beginning on or after January 1, 2022. This move is designed to alleviate the financial burden on veterans transitioning to civilian life and to attract more military personnel to settle in Nebraska.

The key provisions of LB151 allow individuals to exclude 100% of their military retirement income from their federal adjusted gross income, a notable shift from previous regulations that permitted only partial exclusions. Under the earlier framework, retirees could elect to exclude 40% of their military retirement income for seven years or 15% starting at age 67. The new bill simplifies this process, offering a more generous and straightforward benefit.

The introduction of LB151 has sparked discussions among lawmakers and stakeholders regarding its potential economic implications. Proponents argue that the bill will not only support veterans but also stimulate local economies by encouraging military families to relocate to Nebraska. This could lead to increased consumer spending and a boost in housing demand, which is particularly relevant given the state's ongoing efforts to attract and retain skilled workers.

However, the bill has faced some opposition. Critics express concerns about the potential loss of state revenue, arguing that the tax exemptions could strain Nebraska's budget, especially in light of other pressing funding needs. Some lawmakers have called for a more balanced approach that considers both the financial implications and the benefits to veterans.

As the legislative process unfolds, experts suggest that the success of LB151 may hinge on the state's ability to demonstrate the long-term economic benefits of attracting military retirees. If passed, the bill could set a precedent for other states considering similar measures, potentially reshaping the landscape of veteran benefits across the nation.

In conclusion, Legislature Bill 151 represents a significant step towards enhancing the financial well-being of military retirees in Nebraska. As discussions continue, the bill's fate will likely reflect broader priorities regarding veteran support and fiscal responsibility within the state. Lawmakers will need to weigh the immediate benefits against potential long-term economic impacts as they move forward with this legislation.