Does Vermont Tax Social Security and Retirement Income?

Vermont taxes Social Security above $65,000 (single) or $80,000 (joint) of AGI

Vermont is one of the few states that still taxes Social Security, and it decides by federal adjusted gross income. A single filer, head of household, surviving spouse or married person filing separately with federal AGI of $55,000 or less excludes all federally taxable benefits. Between $55,000 and $65,000 the excluded share falls in proportion, and at $65,000 or more nothing is excluded. For a joint return the figures are $70,000 and $80,000. The thresholds are fixed in statute, not indexed. (32 V.S.A. 5830e, Retirement income; Social Security income)

The partial exemption is worked out on the Retirement Income Exemption Worksheet in the Schedule IN-112 instructions. The top of the band ($65,000 or $80,000) less AGI is divided by $10,000 and rounded to two decimal places, and that fraction of the amount on federal Form 1040, line 6b, goes on Schedule IN-112, Part I, line 12. A joint return with AGI of $74,000 excludes 60% of its taxable benefits. (Vermont Department of Taxes, Tax Year 2025 Vermont Income Tax Return Booklet (Forms IN-111 and IN-112, worksheets, tax tables))

All three of our example households are over the limits. The single retiree has federal AGI of $70,500, of which $25,500 is taxable Social Security, and Vermont taxes all of it. The same is true of the couples at $136,750 and $279,500, who have $46,750 and $59,500 of taxable benefits. Because AGI includes the taxable benefits themselves, a household can be pushed over the line by its own Social Security. (32 V.S.A. 5830e, Retirement income; Social Security income)

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Private pensions are fully taxed; some public and military pensions are not

Vermont taxable income starts from federal adjusted gross income and is reduced only by the items the statute lists. A pension from a private employer is not among them, so it is taxed in full at ordinary rates, whatever the retiree’s age or income. (32 V.S.A. 5811, Definitions (subdivision 21: taxable income, capital gains exclusion, standard deduction, personal exemption))

Income from the federal Civil Service Retirement System gets a limited exclusion: the first $10,000, under the same AGI limits as Social Security ($55,000 and $65,000, or $70,000 and $80,000 on a joint return). The same treatment extends to other contributory pension or retirement systems of the U.S. government, Vermont, another state or their political subdivisions, but only where the earnings behind the pension were not covered by Social Security. A taxpayer eligible for more than one of the Social Security, Civil Service and other-system exclusions must elect just one. (32 V.S.A. 5830e, Retirement income; Social Security income)

Military retirement pay and military survivor benefits have their own, wider exclusion from tax year 2025. For any filing status, all of it is exempt when federal AGI is $125,000 or less; between $125,000 and $175,000 the exempt share falls in proportion; at $175,000 or more none is exempt. Unlike the other exclusions, it can be claimed together with the Social Security exemption or one of the public pension exclusions. (Vermont Department of Taxes, 2025 Legislative Highlights (Act 71, retirement income exemptions))

IRA and 401(k) withdrawals and Roth conversions are fully taxable

Taxable distributions from traditional IRAs, 401(k) and 403(b) plans are part of federal adjusted gross income, and the statutory list of subtractions from it has no entry for them. They reach Vermont taxable income in full at any age, alongside private pensions. (32 V.S.A. 5811, Definitions (subdivision 21: taxable income, capital gains exclusion, standard deduction, personal exemption))

The rate statute also increases Vermont tax by 24% of the taxpayer’s federal liability for additional taxes on qualified retirement plans, including IRAs. A withdrawal that draws a federal additional tax therefore carries a Vermont add-on as well as ordinary Vermont tax. (32 V.S.A. 5822, Tax on income of individuals, trusts, and estates)

A Roth conversion is taxed the same way in the year it is made, and it raises federal AGI, which is the figure every Vermont retirement exclusion is tested against. A conversion that lifts a joint return from $68,000 to $82,000 of AGI is taxed itself and also ends the exemption for that year’s Social Security. (32 V.S.A. 5830e, Retirement income; Social Security income)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Ordinary rates, with a narrow capital gains exclusion

Interest, dividends and capital gains are taxed at the ordinary rates. Vermont allows an exclusion for adjusted net capital gain, chosen from two methods: a flat exclusion of the first $5,000, or 40% of the gain on assets held more than three years, up to $350,000. The percentage method is closed to gains on publicly traded stocks and bonds and other financial instruments, on a primary or other home, and on most depreciable personal property. Either way the exclusion cannot exceed 40% of federal taxable income. (32 V.S.A. 5811, Definitions (subdivision 21: taxable income, capital gains exclusion, standard deduction, personal exemption))

Qualified dividends are not eligible for either method. Our households’ figure for long-term capital gains and qualified dividends is treated here as long-term gain on publicly traded funds and shares, the most favourable reading, so the flat exclusion applies: $5,000 of the first couple’s $10,000 and $5,000 of the second couple’s $40,000. To the extent that income is really qualified dividends, the exclusion is smaller and the tax a little higher. (Vermont Department of Taxes, 2025 Schedule IN-153 Instructions, Capital Gains Exclusion)

Interest on U.S. government obligations such as Treasury bonds, bills and notes is exempt and is subtracted on Schedule IN-112. Interest and dividends from other states’ and their municipalities’ bonds, exempt federally, are added to Vermont income; only Vermont obligations stay tax-free. (Vermont Department of Taxes, Tax Year 2025 Vermont Income Tax Return Booklet (Forms IN-111 and IN-112, worksheets, tax tables))

The 2026 preliminary rate schedules, published with the 2026 estimated tax form, tax a single filer at 3.35% up to $50,750 of taxable income, 6.6% up to $122,850, 7.6% up to $256,300 and 8.75% above. For a joint return the thresholds are $84,700, $204,750 and $312,050. The Department labels these preliminary; the final 2026 schedules and tax tables come with the 2026 return forms. (Vermont Department of Taxes, 2026 Form IN-114 Instructions (2026 Preliminary Vermont Tax Rates))

The Department has not yet published the 2026 standard deduction and personal exemption, which are indexed each year, so this page and our examples use the 2025 amounts: a standard deduction of $7,650 for single filers and $15,300 for joint filers, an additional $1,250 for each person 65 or older or blind, and a personal exemption of $5,300 per person. A couple who are both 65 deduct $17,800 plus $10,600 of exemptions. The 2026 amounts will be somewhat higher. (Vermont Department of Taxes, Tax Year 2025 Vermont Income Tax Return Booklet (Forms IN-111 and IN-112, worksheets, tax tables))

A taxpayer whose federal AGI is more than $150,000 pays the greater of the rate-schedule tax and 3% of federal AGI. The floor bites when deductions or exclusions bring taxable income far below AGI. For our third household 3% of AGI is $8,385, less than the $13,904 from the schedule, so the schedule applies. (32 V.S.A. 5822, Tax on income of individuals, trusts, and estates)

The rate schedules send taxable income under $75,000 to the tax tables, which work in $100 bands and tax the midpoint of the band. Our calculation follows that rule with the 2026 preliminary rates, which is why the single retiree’s tax of $2,070 is a few dollars more than the schedule alone would give. Vermont has no separate deduction matching the temporary federal deduction for seniors: its standard deduction, age addition and personal exemption are set by Vermont statute. (Vermont Department of Taxes, Tax Year 2025 Vermont Income Tax Return Booklet (Forms IN-111 and IN-112, worksheets, tax tables))

The additional standard deduction is tied to the federal one: the statute gives an additional amount, $1,000 before annual indexing, for each additional federal standard deduction for age 65 or blindness that the taxpayer qualified for and received. A taxpayer who itemizes federally can also deduct the federal medical expense deduction to the extent it exceeds the Vermont standard deduction and personal exemptions. (32 V.S.A. 5811, Definitions (subdivision 21: taxable income, capital gains exclusion, standard deduction, personal exemption))

Vermont allows a credit equal to 24% of the federal credit for people who are elderly or permanently and totally disabled, which reaches only those with very low incomes. A broader item is the charitable contribution credit: 5% of the first $20,000 of contributions, so up to $1,000, available whether or not the taxpayer itemizes federally. It is nonrefundable. (32 V.S.A. 5822, Tax on income of individuals, trusts, and estates)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Vermont's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which is the same wherever they live. The tax bracket calculator and the guide to taxes in retirement cover that side.

For comparison with other states, Tax Foundation figures drawn from Census data put Vermont property taxes at 1.51% of owner-occupied home value in 2024, the fourth highest in the country. On a $500,000 home that is about $7,550 a year. This is a comparative figure; actual bills depend on the town and its school district. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

A Vermont bill has two parts. The municipal rate is set by the town to cover its own expenses. The education tax is levied on every parcel at one of two rates set each year, homestead and nonhomestead, and a bill shows only the homestead rate when the owner has filed a Homestead Declaration (Form HS-122) for the year and has no business or rental use. A property that is not the owner’s primary residence cannot be declared a homestead, so a second home is taxed at the nonhomestead rate. (Vermont Department of Taxes: Your Vermont Property Tax Bill)

Relief for homeowners runs through the income-based Property Tax Credit, which has no age test. For 2026 claims, household income for 2025 must not exceed $115,400, the claimant must have been domiciled in Vermont for all of 2025 and occupy the home on April 1, 2026, and the maximum credit is $5,600 against the education tax and $2,400 against the municipal tax. Household income is wider than taxable income: it counts everyone living in the home and non-taxable receipts such as Social Security. (Vermont Department of Taxes, The Vermont Property Tax Credit, Publication FS-1038 (revised November 2025))

The statute limits how much of the home the credit covers. For a household with income of $90,000 or more, the education tax on equalized housesite value above $225,000 is outside the credit; below $90,000 the line is $400,000. The claimant’s own share is an income percentage, 2% of household income multiplied by the district’s spending adjustment. Only households with income of $47,000 or less get the additional municipal credit. A retired couple with $110,000 of household income and a $600,000 home therefore receives relief on little more than a third of its value. (32 V.S.A. 6066, Computation of property tax credit and renter credit)

Vermont charges sales tax at 6% on retail sales of tangible personal property unless the law exempts them, and a use tax at the same rate falls on the buyer where sales tax was not collected. (Vermont Department of Taxes: Sales and Use Tax)

The exemptions cover much of a retired household’s routine spending: food and food ingredients bought for consumption off the premises, drugs intended for human use, durable medical equipment and mobility-enhancing equipment, and clothing other than accessories and sports or protective equipment. (32 V.S.A. 9741, Sales not covered (sales tax exemptions))

A municipality may vote to add a 1% local option tax, which makes the sales tax 7% in towns that have one; a separate local option adds 1% to the meals, rooms and alcoholic beverage taxes. The list is long and growing: Burlington, South Burlington, Williston, Colchester, Montpelier, Rutland, Stowe, Manchester and Middlebury are on it, and Bristol, Morristown, Vergennes and several others joined on July 1, 2026. Local option tax does not apply to motor vehicles, which are subject to a separate purchase and use tax. (Vermont Department of Taxes: Local Option Tax)

Restaurant meals and lodging fall under the meals and rooms tax, not the sales tax: 9% on taxable meals and on room rentals and 10% on alcoholic beverages served. (32 V.S.A. 9241, Meals and rooms tax: imposition of tax)

The Tax Foundation’s midyear 2026 comparison puts Vermont’s average local rate at 0.43% and its combined state and local sales tax rate at 6.43%, 32nd among the states. This is a comparative figure. (Tax Foundation, State and Local Sales Tax Rates, Midyear 2026 (comparative figures))

Vermont taxes a Vermont taxable estate at a flat 16% of the amount over $5,000,000; below that there is no tax. The $5 million figure has applied to deaths since 2021 and is not indexed. A $6.5 million taxable estate owes $240,000. Where part of the estate is located outside Vermont, the tax is multiplied by the Vermont share of the gross estate. Nothing in the rate section passes a deceased spouse’s unused $5 million to the survivor, so a couple who leave everything outright to each other have one exclusion at the second death, not two. (32 V.S.A. 7442a, Imposition of a Vermont estate tax and rate of tax)

Taxable gifts made within two years of death are added back when measuring the estate. A return on Form EST-191 is required when the deceased had an interest in Vermont property and the federal gross estate plus those gifts is more than $5 million, or when a federal estate tax return is required. Until 2026 the filing threshold was lower than the payment threshold; the legislature aligned the two at $5 million with effect from June 18, 2026. For a Vermont resident, real and tangible property located in another state is excluded; for a non-resident, intangible property is excluded as well. (Vermont Department of Taxes: Estate Tax)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

Act 71 of 2025 raised each income threshold for the Social Security exemption, and for the $10,000 Civil Service and other public pension exclusion, by $5,000, retroactive to tax years beginning on or after January 1, 2025. The same act created the military retirement and survivor benefit exemption with its $125,000 and $175,000 limits. Those are the rules in force for 2026. (Vermont Department of Taxes, 2025 Legislative Highlights (Act 71, retirement income exemptions))

Act 73 of 2025 rewrote how Vermont pays for schools. Contingent on later steps, it replaces locally driven homestead rates with a statewide education tax funding a per-pupil foundation formula, and it repeals the Property Tax Credit in favour of a homestead exemption that shrinks as income rises. As enacted, households with income up to $115,000 would qualify, and those at or below $25,000 would have 95% of the first $425,000 of housesite value exempted. (Vermont Office of Legislative Counsel, Act No. 73 (H.454) of 2025, Act Summary)

The 2026 session pushed that timetable back. Under Act 170 the new property classifications take effect July 1, 2029, and only if stated contingencies are met, including reports due in December 2026 and December 2028 and further legislation. The Department’s report on the design of the homestead exemption was delayed a year, to December 15, 2027. Until then the existing credit continues, and from claims filed in 2028 its $47,000 income limits rise to $50,000 and the maximum credits to $6,000 and $2,600. (Vermont Department of Taxes, 2026 Legislative Highlights (Acts 164, 169 and 170))

Also from 2026, Vermont requires individuals to add back gain on qualified small business stock that is excluded federally; the 40% capital gains exclusion is generally available for it. Vermont’s income and estate tax law now follows the federal statutes as in effect on December 31, 2025, with stated exceptions. (Vermont Department of Taxes, 2026 Legislative Highlights (Acts 164, 169 and 170))

A person is a Vermont resident for any part of the year in which they are domiciled in Vermont, or in which they maintain a permanent home in Vermont and are present in the state for more than 183 days of the taxable year. The second test can catch an owner of a year-round Vermont house who is domiciled elsewhere. Someone who meets the definition for only part of the year files as a part-year resident. (Vermont Department of Taxes: Who Should File, Resident)

A non-resident is taxed only on Vermont-source income: rents and royalties from Vermont property, gains from the sale of Vermont property, wages for work performed in Vermont and income from a business carried on there. Pension and IRA income is not on that list, although income previously deferred under a non-qualified deferred compensation plan is. (Vermont Department of Taxes: Who Should File, Nonresident)

Federal law (4 U.S.C. 114) bars a state from taxing the retirement income of a person who is not a resident or domiciliary. A pension or 401(k) built during a Vermont career is therefore not taxed by Vermont once the retiree has genuinely moved away. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)

Domicile also governs the property tax. A Homestead Declaration and a Property Tax Credit claim both depend on Vermont being the owner’s domicile, and the credit requires domicile for the entire prior calendar year, so a retiree arriving mid-year waits for the first claim, and one who shifts domicile to another state gives up the homestead rate on the Vermont house. (Vermont Department of Taxes, The Vermont Property Tax Credit, Publication FS-1038 (revised November 2025))