Nebraska Military Retirement Pay Income Tax Exclusion

Section 77-2716(15)(b) provides that for taxable years beginning on or after January 1, 2022, an individual may exclude one hundred percent of military retirement benefit income to the extent it is included in federal adjusted gross income. There is no election to make and no form to file. The Department of Veterans' Affairs says so directly, and it is worth saying because the previous version of the law was built entirely around an election. Between 2015 and 2021, subdivision (15)(a) gave a retiring service member a single chance, exercisable within two calendar years of retirement, to choose between excluding forty percent of retired pay for seven consecutive years or fifteen percent of it from age sixty-seven onward. Miss the two-year window and the exclusion was lost for good. That regime is spent, and its text remains in the statute only because it still governs years before 2022. A veteran who missed the election under the old law, or who chose the worse of the two options, is not prejudiced now: the current exclusion is one hundred percent for everyone. What counts as military retirement benefit income is defined in subdivision (15)(c) and it is narrower than "money from the military". It means retirement benefits that are periodic payments attributable to service in the uniformed services for personal services performed before retirement. The statute then identifies the benefit by the form it arrives on: an Internal Revenue Service Form 1099-R received from the United States Department of Defense, or a Form 1099-R received from the United States Office of Personnel Management. Two consequences follow from the 1099-R test. Disability retired pay under chapter 61 of title 10 that is reported on a DoD 1099-R falls inside the definition, as retirement benefits attributable to service. In most cases that pay is already excluded from federal adjusted gross income under section 104 of the Internal Revenue Code and so never reaches the Nebraska calculation at all, which makes the state exclusion irrelevant rather than unavailable. VA disability compensation is not in this provision and does not need to be. It is not included in federal adjusted gross income in the first place, so Nebraska never taxes it. A veteran whose only income is VA compensation has nothing to exclude and nothing to report. Survivor Benefit Plan annuity payments are a harder question. They are reported on a DFAS 1099-R and they are periodic payments attributable to the retiree's service, but they are paid to the survivor rather than to the individual who performed the service, and subdivision (15)(c) describes personal services performed by "an individual" prior to "his or her" retirement. This catalog does not resolve it. A surviving spouse receiving SBP should ask the Department of Revenue rather than assume either answer. One point of ordinary tax mechanics. Because this is an exclusion from federal adjusted gross income rather than a credit, it reduces Nebraska taxable income and therefore reduces Nebraska tax at the marginal rate. It does not produce a refund of tax the veteran never owed, and a retiree with no Nebraska tax liability gains nothing from it.