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 $60,000 or less and other taxpayers with a federal AGI of $45,000 or less. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits. Tax Breaks for Other Retirement Income Railroad Retirement benefits are 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 Senior homeowners with 2020 household income of $138,500 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 for 2021. The tax rate is a flat 16%.