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This year, I am proud to have prioritized LB 64, a bill to change provisions relating to the taxation of social security benefits which was introduced by Senator Brett Lindstrom of Omaha. As introduced, LB 64 would have phased out the income tax on social security income. Starting in 2021, 20% of the income would be exempt, and would increase by 20% each subsequent year until 2025 when 100% of all social security income would be exempted.
During the committee hearing, the Revenue Committee heard from Jina Ragland, the Associate State Director of Advocacy and Outreach for AARP Nebraska who testified in support of LB 64. During her testimony, she told the committee that Nebraska is one of only thirteen states that currently taxes Social Security benefits. She further explained that these taxes on Social Security benefits could be used to pay for prescription drugs, food, and utility bills.
Before 1984, Social Security benefits were exempt from federal income tax and Nebraska income tax. However, in 1983, the United States Congress enacted legislation to tax a portion of Social Security benefits, with the tax gradually increasing as a person’s income rose above a certain threshold. With this change in federal statute, Nebraska began to tax these benefits, and in 1993, a second income threshold was added at the federal level that increased the taxable share of benefits. As a result of these changes in federal statutes, many states changed their laws to ensure these benefits were not taxed at the state level, however, Nebraska was not one of these states.
LB 64 helps more than retirees as social security also provides monthly benefits for disabled workers, their spouses and dependents, and also provides monthly benefits to qualified survivors of deceased workers. For these citizens on fixed income, annual increases in Medicare and Medicaid Supplemental insurance fees often wipe out Social Security benefit increases which reduces retiree household income. LB 64 allows for greater financial security for our citizens who are receiving Social Security benefits. It also allows for these individuals to care for their families and to live in their own homes, which I believe is a shared goal of us all as we age.
On March 15, LB 64 advanced from the Revenue Committee and placed on General File with am 473. AM 473 simply extends the phase out of taxation of social security benefits from 5 years to 10 years and reduces the percentage of exempt from 20% a year to 10% a year. Currently, the average monthly Social Security benefit in Nebraska is $1,232. This is not a tax break for the rich. This allows our citizens receiving Social Security benefits to live with greater dignity and independence. I, along with Senator Lindstrom, and 8 other cosponsors, look forward to enacting LB 64 to make our state friendlier to retirees and those others who are on a fixed income.
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