Overview of Vermont Retirement Tax Friendliness
Vermont taxes most forms of retirement income at rates ranging from 0.00% 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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Vermont Retirement Taxes
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 0.00% 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 can help you plan for retirement and other financial goals. Finding a financial advisor doesn't have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Is Vermont tax-friendly for retirees?
Vermont taxes most forms of retirement income, including Social Security, though the state does offer an exemption on Social Security benefits depending on your adjusted gross income (AGI).
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 $4,859 per year. Vermont’s average sales tax rate is 6% and the total rate could be up to 7%
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, as mentioned above, Vermont offers taxpayers a Social Security exemption. The size of your exemption will vary depending on your adjusted gross income and tax filing status.
For married couples filing jointly, the exemption is available for those with an AGI up to $65,000. It gradually phases out between $65,000 and $75,000, and is unavailable for those with an AGI of $75,000 or more. For all other filing statuses, the Vermont exemption is available to those with an AGI up to $50,000, phases out for those between $50,000 and $60,000, and does not apply to single filers with an AGI of $60,000 or higher.
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.
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 1.78%, which is one of the highest rates in America. In fact, most homeowners in Vermont pay over $4,859 annually in property taxes.
Overall, home values in Vermont are below the national median. More specifically, Vermont homes are typically worth $272,400, while the U.S. median is just $340,200.
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 $115,000 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?
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%.
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 the 2024 tax year, the tax applies to estates with a gross value greater than $5 million. Above this limit, the tax applies to the entire value of the estate, at a flat rate of 16%.
