Federal and state tax
Contributions are not taxed when deducted, so monthly benefits and refunds are subject to federal and state income tax. Contributions made before Jan. 1, 1986 were after-tax and come back tax-free. School Handbook p. 53, Taxation
NPERS withholds federal tax per your W-4P (default single, zero allowances). Nebraska residents have Nebraska tax withheld at the same rate selected for federal tax. NPERS cannot withhold other states' taxes. Form 1099-R each January. School Handbook p. 53, When Receiving a Retirement Benefit
Nebraska tax on your pension
The 2025 Nebraska booklet lists exclusions for military retirement pay and federal CSRS annuities, but none for state or school pensions. The NPERS handbook says benefits are subject to state income tax. Nebraska Revenue 2025 tax booklet pp. 26-27, Lines 31, 32, 38; School Handbook p. 53
The Nebraska tax booklet lists no exclusion for school pensions (only military and federal CSRS), and NPERS says benefits are taxed by the state. We haven't seen a Revenue statement that says so directly.
What we do: We say Nebraska taxes NPERS pensions, Social Security is fully exempt since 2024, and we label the pension part.
What would settle it: Nebraska Department of Revenue guidance on public pension income.Social Security
Beginning with tax year 2024, the entire Social Security benefit included in federal AGI can be excluded from Nebraska income, with no federal AGI threshold. Nebraska Revenue 2024 tax booklet, Line 28 Social Security Income; Nebraska Revenue 2025 tax booklet p. 26, Line 31 Social Security Income
Contributions made before 1986
Pre-1986 after-tax contributions are recovered tax-free by dividing them by a fixed number of payments set by age at retirement. School Handbook p. 54, Safe Harbor
Refunds
Refunds paid directly to you: NPERS must withhold 20% federal and 5% Nebraska income tax. Before age 59 1/2 a 10% federal penalty and a 3% Nebraska penalty may apply (exceptions include rollover within 60 days, QDRO payments, large medical expenses, separation in or after the year you turn 55, death or disability). School Handbook p. 55, When Receiving a Refund of Your Account Whether a refund or a pension is the better choice is covered on leaving a Nebraska school job.
Nebraska's Social Security exclusion is also on NPERS and Social Security. To see the check the tax comes out of, estimate your pension, and compare payment options, since each pays a different monthly amount.
From the sources
- Monthly benefits and refunds are subject to federal and state income tax because contributions went in before tax. Contributions made before 1986 come back tax-free.School Handbook p. 53
- If you live in Nebraska, NPERS withholds Nebraska tax at the same rate you choose for federal tax. NPERS can't withhold other states' taxes.School Handbook p. 53
- Since tax year 2024, Nebraska excludes all Social Security benefits from state income tax.Nebraska Revenue 2024 tax booklet, Line 28; Nebraska Revenue 2025 tax booklet p. 26, Line 31
- Check with NPERSNebraska's 2025 tax booklet lists exclusions for military retirement and federal CSRS pensions, but none for school pensions. Expect your NPERS pension to be taxed by Nebraska. Check with the Department of Revenue.Nebraska Revenue 2025 tax booklet pp. 26-27
- NPERS's Safe Harbor example: $9,100 of pre-1986 contributions spread over the 260 payments set for ages 61-65 makes $35.00 of each check tax-free.School Handbook p. 54, Safe Harbor
Questions
Is my NPERS pension taxed?
Yes, by the IRS. Your contributions went in before tax, so the benefit is taxable income. Contributions made before 1986 come back tax-free.
Does Nebraska tax my pension?
NPERS says benefits are subject to state income tax, and Nebraska's 2025 booklet lists no exclusion for school pensions. Check with the Department of Revenue.
Does Nebraska tax Social Security?
No, not since tax year 2024.
This is general information from NPERS and the Department of Revenue, not tax advice.
Source: Nebraska School Employees Retirement System Handbook, Revised 07/2026, pp. 53, 54, 55. Also: Nebraska Revenue 2024 tax booklet; Nebraska Revenue 2025 tax booklet pp. 26, 26-27. Last reviewed .