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Vermont Retirement Tax Friendliness

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Overview of Vermont Retirement Tax Friendliness

Vermont taxes all forms of retirement income at rates ranging from 3.55% to 8.95%. This includes Social Security retirement benefits and income from retirement accounts. Property taxes 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 %.
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    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 all forms of retirement income at rates ranging from 3.55% to 8.95%. This includes Social Security retirement benefits and income from retirement accounts.

As described in greater detail below, Vermont also has high property taxes and the 15th highest cost of living in the U.S.

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.

Is Vermont tax-friendly for retirees?

No. Unlike most other states, Vermont taxes all forms of retirement income, including Social Security. It also has relatively high tax rates. For example, if your taxable income is between $37,650 and $91,150, you will pay a top rate of 6.8%.

Along with those high income tax rates, other types of taxes in Vermont can also be hard on retirees. Property taxes for most homeowners total over $3,800 per year. Vermont’s average sales tax rate is 6.18%

Is Social Security taxable in Vermont?

Yes. 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.

Are other forms of retirement income taxable in Vermont?

Yes. All retirement income is taxable in Vermont. Pension income, whether from a government pension or a private employer pension, is taxable. Income from retirement accounts is also taxable. If you plan on making withdrawals from a 401(k), an IRA or another type of retirement account, plan on paying income taxes on that income at the rates shown in the table below.

Income Tax Brackets

Single Filers
Vermont Taxable IncomeRate
$0 - $37,6503.55%
$37,650 - $91,1506.80%
$91,150 - $190,1507.80%
$190,150 - $413,3508.80%
$413,350+8.95%
Married, Filing Jointly
Vermont Taxable IncomeRate
$0 - $62,8503.55%
$62,850 - $151,9006.80%
$151,900 - $231,4507.80%
$231,450 - $413,3508.80%
$413,350+8.95%
Married, Filing Separately
Vermont Taxable IncomeRate
$0 - $31,4253.55%
$31,425 - $75,9506.80%
$75,950 - $115,7257.80%
$115,725 - $206,6758.80%
$206,675+8.95%
Head of Household
Vermont Taxable IncomeRate
$0 - $50,4003.55%
$50,400 - $130,1506.80%
$130,150 - $210,8007.80%
$210,800 - $413,3508.80%
$413,350+8.95%

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%, the eighth highest of any state. In fact, most homeowners in Vermont pay over $3,800 annually in property taxes.

Overall, housing costs in Vermont are 5% higher than the national average. Those high housing costs also drive Vermont’s cost of living. Living costs in Vermont are 9% higher than the national average.

What is the Vermont homestead property tax adjustment?

Vermont has a program to annually reduce property taxes for homeowners who live in their home as a primary residence. The program has several names, including the circuit breaker and the property tax rebate.

The amount of the adjustment varies each year and is determined by a complex formula. It is based on income, home value and the amount of school taxes paid by the homeowner. Eligible homeowners can have household income no greater than $47,000 per year.

Below that limit, the adjustment increases as income decreases. Higher adjustments are also given to homeowners who live in areas with high school taxes. Homeowners who qualify typically save several hundred dollars per year on their property taxes.

Photo credit: ©iStock.com/DenisTangneyJr

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 6.18%, which ranks among the 20 lowest 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. The tax applies to estates with a taxable value greater than $2.75 million. Above that limit, 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 Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied 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 the 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 less 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 down 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. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration