State-by-State Guide to Taxes on Retirees
Tool | December 2020

Vermont State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Vermont

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The Bottom Line
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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: Exempt
Clothing: Exempt
Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 6% purchase and use tax
Prescription 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%.

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