Vermont collects state income tax from residents and nonresidents who earn money in the state

Yes, Vermont has a state income tax. The tax applies to residents on all income earned anywhere, and to nonresidents on income earned within Vermont. Vermont's income tax is separate from federal income tax — you pay both. The state uses a progressive tax system, meaning the rate increases as your income increases.

Vermont's Department of Taxes administers the income tax. You file a Vermont income tax return if you are a resident with income above a certain threshold, or a nonresident who earned money in Vermont. The filing deadline is typically April 15, the same day federal returns are due.

Key Takeaways

  • Vermont residents pay state income tax on all income, whether earned in Vermont or elsewhere, if income exceeds the filing threshold for your filing status.
  • Tax rates range from 3.55% to 8.75% depending on your income level, with higher earners paying higher percentages.
  • You can deduct the federal income tax you paid from your Vermont taxable income, which lowers the amount of Vermont tax owed.
  • Vermont offers a property tax credit and a dependent exemption that may reduce your tax bill if you meet income and other requirements.
  • Nonresidents who worked in Vermont only pay tax on the income earned in the state, not on income from other sources.

Vermont income tax rates and brackets for 2024

Vermont uses six tax brackets. Your rate depends on your filing status (single, married filing jointly, head of household, or married filing separately) and your taxable income. The lowest rate is 3.55% and the highest is 8.75%. Rates increase as income increases within each bracket.

For example, a single filer in 2024 pays 3.55% on income up to $48,600, then 6.8% on income between $48,600 and $117,250, and continues through higher brackets up to 8.75% on income over $246,440. Married couples filing jointly have higher income thresholds before entering each bracket. The exact brackets and rates change annually, so check the Vermont Department of Taxes website for the current year.

Your taxable income is not the same as your gross income. You subtract deductions and exemptions to arrive at taxable income. Vermont allows you to deduct federal income tax paid, which is a significant reduction for most filers. You also subtract the standard deduction or itemized deductions, depending on which is larger.

Who must file a Vermont income tax return

You must file if you are a Vermont resident and your income exceeds the filing threshold for your status. The threshold varies by filing status and age. A single person under 65 typically must file if gross income is above $13,850 for 2024, but this amount changes yearly. Married couples filing jointly have a higher threshold, usually around $27,700. If you are 65 or older, the threshold is higher.

Nonresidents must file if they earned income in Vermont above the filing threshold. A nonresident who worked in Vermont for part of the year reports only the Vermont-source income on the Vermont return. If you had Vermont tax withheld from paychecks but owe no tax, you may still file to get a refund of the overpayment.

Even if you do not meet the filing threshold, filing can be worth your time if you paid Vermont income tax through withholding or estimated payments. You may be owed a refund. Additionally, if you are a Vermont resident, filing allows you to claim the property tax credit or other credits that reduce your tax bill.

Federal income tax deduction and other tax credits

Vermont allows you to deduct the federal income tax you paid during the year from your Vermont taxable income. This deduction is one of the largest available to Vermont filers and significantly reduces the amount of Vermont tax owed. You report the federal tax paid on your Vermont return, and the state subtracts it from your income before calculating your Vermont tax.

Vermont also offers a property tax credit for residents who own or rent their home and whose income and property tax burden meet certain thresholds. The credit reduces your tax bill dollar-for-dollar. Income limits apply — higher earners do not may have access to. You must file a Vermont return and complete the property tax credit form to claim it.

Dependent exemptions are available for each dependent you claim. The exemption amount is subtracted from your taxable income. Vermont also offers a child and dependent care credit if you paid for care to allow you to work, and an earned income tax credit if your income is below certain levels.

How Vermont income tax withholding works

If you are employed in Vermont, your employer withholds Vermont income tax from your paycheck based on the W-4 form you complete. The amount withheld depends on your income, filing status, and the number of allowances you claim. You can adjust your withholding by submitting a new W-4 to your employer at any time.

If you are self-employed or have income not subject to withholding, you may need to pay estimated tax quarterly. Estimated payments are due April 15, June 15, September 15, and January 15 of the following year. If you do not pay enough through withholding and estimated payments, you may owe tax plus interest and penalties when you file.

When you file your return, the tax you owe is compared to the tax already withheld or paid. If you withheld too much, you receive a refund. If you withheld too little, you owe the difference. Most filers receive a refund because they over-withhold during the year.

Filing your Vermont income tax return

You can file your Vermont return on paper or electronically. The Vermont Department of Taxes accepts returns filed through approved tax software, tax professionals, or by mail. Electronic filing is faster and reduces errors. If you file on paper, mail your return to the address listed on the form by April 15.

You will need your Social Security number, income documents (W-2s, 1099s, K-1s), records of deductions or credits you are claiming, and the amount of federal tax you paid during the year. If you are self-employed, you will also need records of business income and expenses. Keep copies of your return and supporting documents for at least three years.

If you cannot file by April 15, you can request an extension. An extension gives you until October 15 to file, but it does not extend the deadline to pay tax owed. If you expect to owe tax, pay as much as you can by April 15 to avoid interest and penalties on the unpaid balance.

Nonresident income tax rules

If you are not a Vermont resident but earned income in Vermont, you file a nonresident return reporting only the Vermont-source income. Vermont-source income includes wages from a Vermont employer, self-employment income from a Vermont business, rental income from Vermont property, and capital gains from the sale of Vermont real estate. Income from other states or sources is not reported on the Vermont return.

Nonresidents use the same tax rates and brackets as residents, but only on Vermont income. If your Vermont employer withheld tax, that withholding is credited against your Vermont tax liability. If you overpaid, you receive a refund. If you underpaid, you owe the difference.

Some nonresidents may also be subject to Vermont's income tax if they maintained a permanent place of abode in Vermont during the year, even if they worked elsewhere. The rules are complex, and your residency status depends on the facts of your situation. If you are unsure whether you must file, contact the Vermont Department of Taxes.

Frequently Asked Questions

What is the Vermont income tax rate?

Vermont's income tax rates range from 3.55% to 8.75% depending on your income level and filing status. The rate you pay depends on which tax bracket your taxable income falls into. Rates increase as income increases. Check the Vermont Department of Taxes website for the current year's brackets and rates.

Can I deduct federal income tax from my Vermont return?

Yes. Vermont allows you to deduct the federal income tax you paid during the year from your Vermont taxable income. This is one of the largest deductions available and significantly reduces the Vermont tax you owe. Report the federal tax paid on your Vermont return.

Do I have to file a Vermont return if I only worked there part of the year?

If you are a nonresident who worked in Vermont part of the year, you file a nonresident return reporting only the income earned in Vermont. If that income exceeds the filing threshold, you must file. If tax was withheld from your paychecks, filing may result in a refund even if you do not owe tax.

What happens if I do not file a Vermont income tax return?

If you owe tax and do not file, the Vermont Department of Taxes may assess penalties and interest on the unpaid tax. The department can also pursue collection action. If you are owed a refund, you have a limited time to claim it — typically three years from the filing deadline.

Where do I send my Vermont income tax return?

Mail paper returns to the Vermont Department of Taxes at the address shown on the tax form. The mailing address changes, so check the current form before sending. Electronic filing through approved software or a tax professional is faster and reduces errors. The filing deadline is April 15 unless you request an extension.