Vermont has a state income tax
Yes. Vermont taxes income at the state level. The state uses a progressive tax system, meaning the rate you pay depends on how much you earn — higher earners pay a higher percentage. Vermont residents and part-year residents who earned income in the state must file a Vermont tax return if their income exceeds certain thresholds.
Vermont's income tax funds state services including education, healthcare, and infrastructure. Unlike some states, Vermont does not have a flat tax rate; instead, it applies different rates to different income brackets, similar to the federal system.
Key Takeaways
- Vermont taxes income using five tax brackets that range from 3.55% to 8.75%, depending on your income level and filing status.
- You must file a Vermont tax return if your income exceeds the filing threshold for your filing status, even if you owe no tax.
- Vermont allows you to claim the federal standard deduction or itemize deductions, and offers additional state-specific credits and deductions.
- Part-year residents and people who worked in Vermont but lived elsewhere may owe Vermont tax on income earned in the state.
Vermont's tax brackets and rates for 2024
Vermont's income tax brackets vary by filing status. For single filers in 2024, the brackets are:
| Income Range | Tax Rate |
|---|---|
| $0 to $48,600 | 3.55% |
| $48,601 to $117,250 | 6.8% |
| $117,251 to $264,550 | 7.75% |
| $264,551 and above | 8.75% |
Married couples filing jointly have wider brackets at each rate level. For example, the 3.55% bracket extends to $81,050 for married filers, compared to $48,600 for single filers. Head of household filers have their own bracket structure as well.
These brackets adjust annually for inflation. The Vermont Department of Taxes publishes updated brackets each year, usually in December for the following tax year. You can find current brackets on the department's website.
Who must file a Vermont tax return
You must file a Vermont return if your gross income exceeds the filing threshold for your status. For 2024, single filers with gross income over $14,600 must file. The threshold is higher for married filers ($29,200 for married filing jointly) and varies for other filing statuses.
Even if you earn below the threshold, you may want to file if you had taxes withheld from your paychecks or if you may have access to for refundable credits like the Earned Income Tax Credit (EITC). Filing allows you to recover any overpayment.
Part-year residents must file if they earned income in Vermont during the year, even if they did not live in the state for the full year. The same applies to nonresidents who worked in Vermont.
Deductions and credits available in Vermont
Vermont allows you to claim either the federal standard deduction or itemize deductions on your state return. The standard deduction amounts mirror the federal amounts for each filing status. For 2024, the federal standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
Vermont also offers state-specific credits and deductions. These include the Vermont Property Tax Credit (for renters and homeowners with lower incomes), the Dependent Exemption Credit, and the Education Tax Credit for certain education expenses. Some credits are refundable, meaning you can receive money back even if you owe no tax.
If you pay property taxes or rent, you may may have access to for the Property Tax Credit, which reduces your tax liability based on your income and housing costs. The credit phases out at higher income levels.
How Vermont taxes different types of income
Vermont taxes wages, salaries, and self-employment income at the rates shown in the brackets above. Interest and dividend income is also taxable. Capital gains (profit from selling investments or property) are taxed as ordinary income in Vermont, with no special long-term capital gains rate.
Some income is exempt from Vermont tax. These exemptions include federal Social Security benefits, certain pension income for military retirees, and income from certain bonds issued by Vermont municipalities. Retirement distributions from IRAs and 401(k)s are taxable, though Vermont allows a deduction for certain retirement income if you meet age and income requirements.
If you received unemployment benefits during the year, those are taxable in Vermont. The same applies to gambling winnings and other miscellaneous income.
Filing requirements for part-year residents and nonresidents
If you moved to or from Vermont during the year, you are a part-year resident. You must report all income earned while you were a Vermont resident, plus any income earned in Vermont while you were a nonresident. You will also file a federal return reporting your total income for the year.
Nonresidents who worked in Vermont but lived elsewhere must file a Vermont return on income earned in the state. This includes wages, self-employment income, and income from rental property located in Vermont. You will also file a return in your home state, which may allow a credit for taxes paid to Vermont to avoid double taxation.
When you move, notify the Vermont Department of Taxes of your new address and the date you left the state. This ensures your records are updated and you receive any refunds at the correct address.
Where to file and what documents you need
You file your Vermont tax return with the Vermont Department of Taxes. Most people file electronically using tax software or a tax preparer. Paper forms are available on the department's website if you prefer to file by mail.
You will need your Social Security number or Individual Taxpayer Identification Number (ITIN), W-2 forms from employers, 1099 forms for other income (interest, dividends, self-employment), and documentation of any deductions or credits you claim. If you own property or pay rent, keep records of those payments for the Property Tax Credit.
The federal tax deadline (usually April 15) is also Vermont's deadline. If you file your federal return late, your Vermont return is also considered late. Vermont allows an extension to October 15 if you request it before the April deadline.
Frequently Asked Questions
Do I have to pay Vermont income tax if I work in Vermont but live in another state?
Yes, you owe Vermont tax on income you earned in Vermont. You will file a Vermont return reporting that income and also file a return in your home state. Your home state may allow a credit for Vermont taxes paid to prevent paying tax twice on the same income.
What is the difference between Vermont's tax rate and the federal tax rate?
Vermont's top rate is 8.75%, while the federal top rate is 37%. Both use progressive brackets, so you pay different rates on different portions of your income. Your total tax bill includes both state and federal taxes.
Can I deduct federal income taxes from my Vermont return?
No. Vermont does not allow a deduction for federal income taxes paid. However, you can deduct state and local taxes (SALT) on your federal return, up to $10,000 per year.
Do retirees get a break on Vermont income tax?
Vermont offers a deduction for certain retirement income if you are age 60 or older and meet income limits. The deduction applies to distributions from IRAs, 401(k)s, and some pensions. Check the Vermont Department of Taxes website for current income thresholds and the maximum deduction amount.
What happens if I do not file a Vermont tax return when I am supposed to?
Vermont charges penalties and interest on unpaid taxes. The penalty for filing late is typically 5% per month (up to 25%) of the unpaid tax. Interest accrues daily. If you believe you will miss the deadline, file for an extension before April 15 to reduce penalties.