State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. Go to Retiree Tax Map Vermont Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Least Tax-Friendly You'll need plenty of firewood to make it through Vermont winters, and plenty of money for the tax bill, too. The Green Mountain State has a steep top income tax rate, and most retirement income is taxed. The state also taxes all or part of Social Security benefits for residents with federal adjusted gross income a certain amount.Vermont's median property tax rate is the fifth-highest in the U.S. Homeowners age 65 and older may qualify for a tax credit worth up to $8,000, but the credit is only available if their household income doesn't exceed a certain level.Vermont also taxes estates that exceed $5 million in value.At least Vermont's sales tax is on the low end. The average combined state and local tax rate is only 6.24%, and food for home consumption and clothing are exempt, limiting the impact of this tax (remember, no-sales-tax New Hampshire is next door). Income Tax Range Low: 3.35% (on up to $40,950 of taxable income for singles and up to $68,400 for joint filers)High: 8.75% (on taxable income over for $206,950 for singles and up to $251,950 for joint filers) Taxation of Social Security Benefits Social Security benefits are not taxed for joint filers with a federal adjusted gross income of $65,000 or less and other taxpayers with a federal AGI of $50,000 or less. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits. The exclusion for Social Security benefits cannot be taken if an exclusion for government (including military) pension income is claimed. Tax Breaks for Other Retirement Income The first $10,000 of income from the federal Civil Service Retirement System or a military pension is not taxed for joint filers with a federal adjusted gross income of $65,000 or less and other taxpayers with a federal AGI of $50,000 or less. The exemption also applies to income from a federal, state, or local government contributory annuity, pension, endowment, or retirement system based on earnings that were not covered by the federal Social Security Act. Taxpayers who exceed the income limits may qualify for a reduced exemption. The exclusion for government (including military) pension income cannot be taken if an exclusion for Social Security benefits is claimed.Railroad Retirement benefits are fully exempt. Sales Tax 6% state levy. Municipalities can add 1% to that, but the average combined state and local rate is 6.24%, according to the Tax Foundation.Groceries: ExemptClothing: ExemptMotor Vehicles: Exempt from ordinary sales tax, but taxable under special 6% purchase and use taxPrescription Drugs: Exempt Real Property Taxes For 2022, senior homeowners with 2021 household income of $136,900 or less may qualify for a property tax credit of up to $8,000. To satisfy the household income requirement, homeowners age 65 and older don't have to include interest and dividend income greater than $10,000. In addition, a spouse's income is not included if he or she is at least 62 years old and permanently living in a nursing home or other care facility with no reasonable prospect of returning home. If you're at least 62 years old, a person who lives with you to provide attendant care, homemaker, or companionship services so that you can remain in your home is not considered a member of your household. Annual Car Taxes and Fees No annual vehicle tax or fee is imposed. Estate and Inheritance Taxes Vermont has an estate tax with an exemption of $5 million. The tax rate is a flat 16%.