Vermont income tax is a progressive state tax system that affects residents and part-year filers differently than you might expect. If you live in Vermont or earn income there, understanding how the state’s tax brackets, deductions, and credits work can save you hundreds—or thousands—of dollars come tax season.
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Vermont Tax Rates & Brackets
Vermont’s income tax system uses five progressive tax brackets for 2024, meaning your tax rate increases as your income climbs. Unlike some states that cap their top rate at modest income levels, Vermont continues to tax higher earners at increasingly higher percentages.
For single filers in 2024, the brackets break down roughly like this: 3.55% on income up to $47,000, 6.8% from $47,000 to $120,000, 7.8% from $120,000 to $204,000, 8.8% from $204,000 to $248,000, and 8.95% on income above $248,000. If you’re married filing jointly, those thresholds are roughly doubled. The state adjusts these brackets annually for inflation, so check the Vermont Department of Taxes website for the most current numbers.
What makes Vermont different from neighboring states is its commitment to progressive taxation—higher earners pay a genuinely higher percentage, not just more total dollars. This matters psychologically and practically when you’re planning your finances.
Who Must File in Vermont
You’re required to file a Vermont income tax return if your gross income exceeds certain thresholds. For 2024, single filers must file if gross income is over $13,850, while married couples filing jointly need to file if their combined income exceeds $27,700. Part-year residents—people who moved to or from Vermont during the year—must also file, even if they don’t meet the income threshold, to claim any refundable credits.
Vermont also requires you to file if you owe state tax, even if you’re below the threshold. This is important: you might have Vermont tax liability even with modest income due to how the state treats certain types of income or if you have self-employment earnings. If you’re unsure, it’s safer to file than to skip it and face penalties later.
Non-residents who earned Vermont-source income must file too. This includes people who worked in Vermont for part of the year or have investment income from Vermont property. The state takes this seriously, so don’t assume you’re off the hook just because you moved away.
Deductions & Tax Credits
Vermont allows you to claim either the standard deduction or itemize deductions, just like federal taxes. For 2024, the Vermont standard deduction mirrors the federal amount pretty closely—around $14,600 for single filers and $29,200 for married couples filing jointly. Many Vermonters use the standard deduction because it’s simpler and often results in the same tax benefit as itemizing.
If you do itemize, you can deduct state and local taxes (SALT), mortgage interest, charitable contributions, and medical expenses that exceed 7.5% of your adjusted gross income. However, Vermont’s SALT deduction is capped at $10,000, which affects higher-income residents in particular.
Vermont offers several credits worth investigating: the Earned Income Tax Credit (EITC) for lower-income workers, the Child and Dependent Care Credit, the Education Credit, and the Property Tax Credit for homeowners with limited income. The state also has a Renewable Energy Equipment Credit if you’ve installed solar panels or other qualifying systems. These credits directly reduce your tax bill, making them more valuable than deductions.
Capital Gains Treatment
Here’s where Vermont gets creative and potentially costs you money if you’re not paying attention: Vermont taxes long-term capital gains at a higher rate than the federal government does. While the federal rate tops out at 20% for high earners, Vermont adds its regular income tax rates on top of capital gains. This means a high-income Vermonter could pay 28.95% on long-term capital gains—federal plus state combined.
The state does allow you to exclude 40% of long-term capital gains from taxation, which is Vermont’s way of offering some relief. But if you’re selling appreciated assets—stocks, real estate, investment property—you need to factor in this extra Vermont layer. Many high-net-worth residents use strategies like timing asset sales across tax years or donating appreciated securities to charity to manage this liability.
Short-term capital gains (assets held less than a year) are taxed as ordinary income at your marginal rate, which can be even higher. This is why working with a tax professional before making major investment decisions makes sense in Vermont.
Retirement Income & Pensions
If you’re retired and receiving pension income, Social Security, or distributions from retirement accounts, Vermont treats these differently than earned wages. Social Security benefits are not taxable in Vermont, which is good news for retirees. However, other retirement income is generally taxable.
Pension income from military service, government employment, and some private pensions may qualify for partial or full exemptions under Vermont’s pension income exclusion. The rules are complex and depend on when you retired and the source of your pension. A retiree might exclude up to $14,600 of pension income in 2024, though this amount changes annually.
If you’re taking early distributions from IRAs or 401(k)s before age 59½, you’ll owe both federal and Vermont taxes on the withdrawal (plus the 10% federal penalty). Vermont doesn’t offer any special exemption for early distributions, so plan ahead if you need access to retirement funds.
Estimated Tax Payments
If you’re self-employed, a freelancer, or have significant income that isn’t subject to withholding, you’ll need to make quarterly estimated tax payments to Vermont. The state expects you to pay 90% of your current year’s tax liability or 100% of the prior year’s liability (whichever is smaller) to avoid penalties. Missing these payments costs you money in underpayment penalties, even if you ultimately owe nothing.
Estimated payments are due April 15, June 17, September 16, and January 15. Mark these dates in your calendar now. Many self-employed people use accounting software to calculate their quarterly obligation, or they work with a CPA to figure out the right amount. Paying too much is fine—you’ll get a refund—but underpaying triggers penalties that compound.
If your income fluctuates significantly during the year, you can use the annualized income method to potentially lower your quarterly payments in slower months. This requires more complex calculations, but it’s worth exploring if your income is uneven.
Common Filing Mistakes
Vermont taxpayers make predictable errors that cost them money. The first is forgetting to report all income sources. Gig economy earnings from platforms like DoorDash or Uber, rental income from a spare room, or side freelance work often gets overlooked. The state matches information returns (like 1099s) against your filing, so unreported income gets caught eventually, triggering penalties and interest.
Another common mistake is misunderstanding the homestead property tax credit. Many homeowners think they don’t qualify because they own their home outright or because they make “too much” money. In reality, Vermont’s homestead credit is available to renters and homeowners with income up to around $92,000 (for 2024). If you haven’t claimed it, you might have refund money waiting.
People also overlook education credits. If you paid tuition for yourself or dependents, the American Opportunity Credit or Lifetime Learning Credit might apply. These can be worth $2,500 per student per year. Similarly, child care expenses qualify for a credit that many working parents miss.
Finally, part-year residents often file incorrectly. If you moved to Vermont mid-year, you need to prorate your standard deduction and calculate your tax based on the portion of the year you were a resident. This requires careful documentation of your move date and can be tricky if you’re doing it yourself.
Resources & Where to Get Help
The Vermont Department of Taxes website (tax.vermont.gov) is your official source for forms, publications, and current tax information. They publish detailed guides for specific situations—part-year residents, retirees, business owners—that are worth reading before you file.
If you need personalized help, the IRS offers free tax preparation services through VITA (Volunteer Income Tax Assistance) at community centers and libraries throughout Vermont. These services are free for anyone earning under $64,000 and can help you navigate Vermont-specific rules.
For more complex situations—business income, significant investments, or multistate residency—hiring a CPA or tax professional is worth the cost. Many Vermont tax professionals offer flat-fee preparation for straightforward returns, making professional help more affordable than you might think. You can also explore tools like paycheck calculators to estimate your tax liability before filing, or compare how Vermont’s rates stack up against other state income tax systems.
If you’re comparing Vermont to other states or planning a move, understanding how different states handle income tax is crucial. Maryland’s income tax rates and other state systems offer useful comparisons.
Frequently Asked Questions
Does Vermont have local income taxes?
No. Vermont has no local or municipal income taxes. Your Vermont income tax liability is determined entirely by state law, not by which town you live in. This is one area where Vermont is simpler than some other states.
Can I deduct federal taxes from my Vermont return?
No. Vermont doesn’t allow you to deduct federal income taxes paid. You can deduct state and local taxes (up to $10,000) if you itemize, but federal taxes are not deductible on your Vermont return.
What’s the Vermont tax deadline?
Vermont follows the federal tax deadline, which is April 15 for most people. If April 15 falls on a weekend or holiday, the deadline extends to the next business day. You can request a six-month extension, but remember that extensions only delay filing—not payment. If you owe, interest accrues from April 15 regardless of extension.
Do I owe Vermont tax if I’m a non-resident?
Only if you earned Vermont-source income. Non-residents working in Vermont for part of the year owe Vermont tax on that income. However, you may be eligible for a credit on your home state return to avoid double taxation. This is an area where professional help often pays for itself.
How is Vermont income tax calculated for part-year residents?
Part-year residents must prorate their standard deduction based on the number of days they were Vermont residents. If you moved to Vermont on July 1, you’d claim roughly half the standard deduction. Your income is also allocated between Vermont and your previous state based on residency dates. This calculation is more complex than it sounds, and mistakes are common.
What if I moved out of Vermont mid-year?
You’ll file as a part-year resident for both Vermont and your new state. You’ll need documentation of your move date (lease, utility bills, employment records). Vermont taxes only the income you earned while a resident, and your new state taxes income earned after you moved there. Coordinate your filings carefully to avoid paying tax twice on the same income.
Are there Vermont tax breaks for seniors?
Vermont offers the homestead property tax credit, which benefits seniors with limited income. Social Security is not taxable. Some pension income may be excluded. The state also offers a property tax adjustment for low-income homeowners. If you’re over 65 and own your home, investigate these credits—they can meaningfully reduce your tax burden.
