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Vermont Retirement Tax Friendliness

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Overview of Vermont Retirement Tax Friendliness

Vermont taxes most forms of retirement income at rates ranging from 3.35% to 8.75%. This includes Social Security retirement benefits and income from most retirement accounts. Property taxes in Vermont are among the highest in the nation, but sales taxes are below average.

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You will pay of Vermont state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
  • Our Tax Expert

    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Vermont Retirement Taxes

Photo credit: ©iStock.com/DenisTangneyJr

When it comes to taxes, Vermont is not necessarily a great state for retirees. It taxes most forms of retirement income at rates ranging from 3.35% to 8.75%. This includes Social Security retirement benefits and income from most types of retirement accounts. The only type of retirement income that's exempt from Vermont taxes is federal railroad retirement benefits.

Those high taxes don’t necessarily mean Vermont isn’t the right retirement state for anyone, however. Attractions like the Green Mountains, Lake Champlain and the Sugarbush Ski Resort draw visitors from all over the country. Seniors who enjoy an active, outdoor lifestyle may find Vermont to be the perfect retirement state in spite of its high taxes.

A financial advisor in Vermont can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial plans, including taxes, homeownership, insurance and estate planning, to make sure you are preparing for the future.

Is Vermont tax-friendly for retirees?

Vermont taxes most forms of retirement income, including Social Security, though the state does offer an exemption that certain taxpayers can qualify for. Its income tax rates range up to 8.75%, which is high on a national scale.

Along with those high income tax rates, other types of taxes in Vermont can also be hard on retirees. Property taxes for the typical homeowner here total over $4,300 per year. Vermont’s average sales tax rate is 6.22%.

Is Social Security taxable in Vermont?

Social Security retirement benefits in Vermont are taxable if they are also taxed federally. In general, Social Security is subject to federal income taxes if you have other sources of income in addition to your Social Security retirement benefits.

To counteract this tax, Vermont offers taxpayers a Social Security exemption. The size of your exemption will vary depending on your adjusted gross income and tax filing status. Here are the income rules surrounding this exemption:

Vermont Social Security Exemption

Single Filers
AGIExemption Amount
$0 - $45,000Full exemption
$45,001 - $54,999Partial exemption
$55,000+No exemption
Married, Filing Jointly
AGIExemption Amount
$0 - $60,000Full exemption
$60,001 - $69,999Partial exemption
$70,000+No exemption
Married, Filing Separately
AGIExemption Amount
$0 - $45,000Full exemption
$45,001 - $54,999Partial exemption
$55,000+No exemption
Head of Household
AGIExemption Amount
$0 - $45,000Full exemption
$45,001 - $54,999Partial exemption
$55,000+No exemption
Widow(er)
AGIExemption Amount
$0 - $45,000Full exemption
$45,001 - $54,999Partial exemption
$55,000+No exemption

Are other forms of retirement income taxable in Vermont?

Most retirement income is taxable in Vermont. This applies to all private and public pension income, with the exception of federal railroad retirement benefits. Income from retirement accounts is also taxable. If you plan on making withdrawals from a 401(k), IRA or another type of retirement account, plan on paying income taxes on that money at the rates shown in the table below.

Income Tax Brackets

Single Filers
Vermont Taxable IncomeRate
$0 - $40,3503.35%
$40,350 - $97,8006.60%
$97,800 - $204,0007.60%
$204,000+8.75%
Married, Filing Jointly
Vermont Taxable IncomeRate
$0 - $67,4503.35%
$67,450 - $163,0006.60%
$163,000 - $248,3507.60%
$248,350+8.75%
Married, Filing Separately
Vermont Taxable IncomeRate
$0 - $33,7253.35%
$33,725 - $81,5006.60%
$81,500 - $124,1757.60%
$124,175+8.75%
Head of Household
Vermont Taxable IncomeRate
$0 - $54,1003.35%
$54,100 - $139,6506.60%
$139,650 - $226,2007.60%
$226,200+8.75%

How high are property taxes in Vermont?

Vermont homeowners pay some of the highest property taxes in the U.S. The average effective property tax rate is 1.86%, which is the fifth-highest rate in America. In fact, most homeowners in Vermont pay over $4,300 annually in property taxes.

Overall, home values in Vermont are right in line with the national median. More specifically, Vermont homes are typically worth $233,200, while the U.S. median is just $240,500.

What is the Vermont Property Tax Credit?

Vermont has a program to annually reduce property taxes for homeowners who live in their home as a primary residence. If you meet all of the requirements below, the tax credit can be worth a maximum of $8,000, which could be a big help. Here are the stipulations for this program:

  • Your property qualifies as a homestead.
  • The property was your homestead since April 1 of the tax year.
  • Your household income is $138,250 or less.
  • You lived in Vermont for the entire prior calendar year.
  • You were not claimed as a dependent.

How high are sales taxes in Vermont?

Photo credit: ©iStock.com/DenisTangneyJr

Unlike the taxes mentioned above, the Green Mountain State’s sales taxes are relatively low. The tax rate in most areas is 6%. Some cities, including Burlington and Dover, collect an additional sales tax of 1%. Overall, the average sales tax rate in Vermont is 6.22%, which ranks among the 20 lowest rates in the U.S.

Vermont has a number of sales tax exemptions that should limit the amount of sales taxes paid by most seniors. There are exemptions for groceries, prescription drugs, medical equipment and clothing.

What other Vermont taxes should I be concerned about?

Retirees who intend to leave behind a portion of their estate to their loved ones may be affected by the Vermont estate tax. For 2020 and 2021, the tax applies to estates with a gross value greater than $4.25 million and $5 million, respectively. Above these limits, the tax applies to the entire value of the estate, at a flat rate of 16%.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology To find the most tax friendly places for retirees, our study analyzed how the tax policies of each city would impact a theoretical retiree with an annual income of $50,000. Our analysis assumes a retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from a retirement savings account like a 401(k) or IRA.

To calculate the expected income tax this person would pay in each location, we applied the relevant deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income after subtracting income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. The income tax category made up 40% of the index, property taxes accounted for 30%, sales taxes 20% and fuel taxes 10%.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2018 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration