Updated October 7, 2026. Quick answer: Yes, 3.5%, when federal tax is withheld. The Department of Revenue’s 2026 Circular EN says that “withheld at a rate of 3.5% of the distribution” applies to nonperiodic payments and eligible rollover distributions subject to federal withholding, and that payees who choose no federal withholding are not required to have state tax withheld.
Drawing a pension? Whether the state withholds tax from it, from its own documents: Nebraska tax withholding on pension payments.
Nebraska withholding at a glance
| Item | What the documents say |
|---|---|
| Is it required? | Yes when the payment is subject to federal withholding (10% or 20%); a payee who chooses no federal withholding is not required to have state tax withheld |
| Rate or amount | 3.5% of the distribution for nonperiodic payments and eligible rollover distributions |
| How to start or stop it | Nebraska Form W-4N, to request additional or elective state withholding |
| Direct rollover | Not stated in the documents read |
| Changed for 2026? | The 2026 Circular EN, for payments on or after January 1, 2026, states 3.5%; the 2023 edition stated 5% |
What the Nebraska documents say
The 2026 Circular EN, Nebraska’s withholding instructions for payments on or after January 1, 2026, says that nonperiodic payments or eligible rollover distributions subject to either the 10% or 20% federal rate “withheld at a rate of 3.5% of the distribution” for state purposes. It adds that payees “choosing to not have federal income tax withheld are not required” to have state tax withheld.
A payee who wants more taken out files a form: the Circular says “request to have additional state income tax withheld” goes through a Nebraska Form W-4N. The Circular also says premature distributions from an IRA are not subject to Nebraska income tax withholding. The 2027 Circular EN, for payments on or after January 1, 2027, states the same 3.5% rate.
A $50,000 withdrawal: cash in hand or a direct rollover
Take a $50,000 401(k) withdrawal paid to you. The IRS says a taxable eligible rollover distribution paid to you from an employer plan is subject to “mandatory income tax withholding (generally at a rate of 20%)”, which on $50,000 is $10,000 (computed as $50,000 times 20%) held back for federal tax. Because federal tax is withheld, Nebraska withholding follows at 3.5% of the distribution: $1,750 (computed as $50,000 times 3.5%). The Circular also says a premature distribution from an IRA is not subject to Nebraska withholding.
The other path is a direct rollover to an IRA or another plan. For federal tax the IRS says “The mandatory withholding doesn’t apply in a direct rollover”. The Nebraska documents read do not say how a direct rollover is treated for state withholding, so confirm it with the payer before choosing.
What a mover should know
This page is about Nebraska as a state of residence. An instruction line written for a nonresident or part-year filer is not the rule for a resident, and none of the documents read settles a part-year or two-state case, so check each state’s own rule. The federal side is the same everywhere; CMG’s federal 20% withholding on a pension lump sum page covers it, and state withholding on retirement withdrawals lists the other states checked.
What the documents do not say
- The 2026 and 2027 Circular EN editions do not address a direct rollover.
Common mistakes
- Expecting Nebraska to withhold when you chose no federal withholding; the Circular says you are not required to have state tax withheld.
- Using the federal W-4P for Nebraska after 2021; the Circular says a payee who completes a federal W-4P on or after January 1, 2022 must complete Form W-4N for Nebraska.
- Assuming the answer for one state applies to another, or that state withholding settles the state tax owed at filing.
Related: state withholding on retirement withdrawals, how Nebraska taxes 401(k) and IRA withdrawals, Nebraska retirement taxes, and retirement withholding calculator.
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Answer againSources
- 2026 Nebraska Circular EN (payments on or after January 1, 2026): https://revenue.nebraska.gov/sites/default/files/doc/business/Cir_En_2025/2026cir_en_whole.pdf
- 2027 Nebraska Circular EN (payments on or after January 1, 2027): https://revenue.nebraska.gov/sites/default/files/doc/business/Cir_En_2026/2027cir_en_whole.pdf
- IRS Tax Topic 413, Rollovers from retirement plans: https://www.irs.gov/taxtopics/tc413
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.