Military Retirement Benefits Exclusion
This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (DOR) until amended. A guidance document does not include internal procedural documents that only affect the internal operations of the DOR and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document.
This guidance document may change with updated information or added examples. The DOR recommends you do not print this document. Instead, sign up for the subscription service at revenue.nebraska.gov to get updates on your topics of interest.
Information on the military retirement benefits exclusion.
What is the military retirement benefit exclusion for Nebraska?
For tax years beginning on or after January 1, 2022, all military retirees may exclude 100% of military retirement benefits from Nebraska taxable income to the extent included in federal adjusted gross income (AGI). No election or form submission is needed to claim the exclusion.
Previously, an election was required within two years after the military retirement date (separation date) by submitting a Form 1040N-ML and the exclusion was partial. Form 1040N-ML should no longer be submitted to the DOR.
Do I need to submit anything to DOR if I previously elected to exclude military retirement benefits?
No. Beginning with the 2022 Nebraska income tax return, all military retirees are eligible to exclude 100% of military retirement benefits from Nebraska taxable income to the extent included in federal AGI. Please see the Nebraska Indvidual Income Tax Return, Form 1040N Instructions for required documentation when claiming the credit.
Who qualifies for the military retirement benefit income exclusion for tax years beginning on or after January 1, 2022?
All military retirees who receive military retirement benefits when all or any portion of the retirement benefit is included in AGI. Military retirement benefits are periodic payments attributable to service in the uniformed services of the United States for personal services performed by an individual prior to his or her retirement. This includes military retirement benefits reported on the IRS Form 1099-R, issued by either the U.S. Department of Defense or the U.S. Office of Personnel Management (OPM).
Military retirees of the U.S. Coast Guard, an officer of the Commissioned Corps of the U.S. Public Health Service (USPHS), and an officer of the U.S. National Oceanic and Atmospheric Administration Commissioned Officer Corps (NOAA) may receive qualifying military retirement benefits. The retirement benefit income for U.S. Coast Guard, USPHS, and NOAA retirees maybe reported by a payor other than the U.S. Department of Defense or OPM. For example, a Form 1099-R received from the Commanding Officer (RAS), USCG Pay & Personnel Center for military retirement benefits from the U.S. Coast Guard qualifies for the exclusion.
What if only some of the retirement benefit income reported by the U.S. Office of Personnel Management is related to my uniformed service?
Individuals that elected to waive the retired military pay and have the military service added to their civilian service in computing the Federal Employees Retirement System (FERS) Annuity will have a Form 1099-R from the U.S. Office of Personnel Management. To determine the exclusion for the military retirement benefits, the retiree will need to calculate the portion of the retirement benefit income that is attributed to service in the uniformed services of the United States.
What documentation do I need to submit with my return if the Form 1099-R includes a portion of retirement benefit income attributed to my uniformed services in the United States?
Attach documentation to the Nebraska income tax return to support the amount of retirement benefits related to your uniformed service. The documentation may include:
Notification of Personal Action, Standard Form 50 electing civil service retirement, and other documents from the U.S. government showing the computation of your retirement pay by type of service (uniformed services v. civil service).