Vermont has a state income tax

Yes, Vermont taxes your income. The state has a progressive tax system, meaning the rate you pay depends on how much you earn. Vermont residents pay tax on wages, self-employment income, investment gains, and other sources. The tax is separate from federal income tax — you file both.

Vermont's top rate is 8.75%, but most people pay less. The actual rate depends on your filing status and total income. You'll report Vermont income on Form VT-100 when you file your state return, usually at the same time you file federal taxes.

Key Takeaways

  • Vermont's income tax rates range from 3.55% to 8.75%, depending on your income level and filing status.
  • You must file a Vermont return if you're a resident with income above the filing threshold, which varies by age and filing status.
  • Vermont allows a federal tax credit and a property tax credit that can reduce what you owe.
  • If you work in Vermont but live in another state, you may owe Vermont tax on wages earned in the state.
  • Self-employed people pay both income tax and self-employment tax, and can deduct half of self-employment tax from Vermont income.

Vermont's tax brackets and rates for 2024

Vermont uses tax brackets that change each year. For the 2024 tax year, a single filer pays 3.55% on the first portion of income, then the rate steps up at higher income levels, reaching 8.75% on income above a certain threshold. The exact dollar amounts where rates change depend on whether you file as single, married filing jointly, married filing separately, or head of household.

The brackets are indexed for inflation, so they shift slightly each year. You can find the current year's brackets on the Vermont Department of Taxes website or in the instructions that come with Form VT-100. Because the brackets change annually, it's worth checking the current rates rather than relying on last year's return.

Vermont also taxes capital gains and dividends as ordinary income, with no special lower rate. If you sold investments at a profit or received dividend income, that counts toward your total income for tax purposes.

Who has to file a Vermont return

You must file if you're a Vermont resident and your income exceeds the filing threshold for your age and filing status. The threshold is lower for people 65 and older. A single person under 65 typically needs to file if gross income is above a certain amount, while a married couple filing jointly has a higher threshold. These thresholds also change yearly.

Even if you don't have to file, you may want to. If Vermont tax was withheld from your paychecks or you made estimated tax payments, filing gets you a refund. If you're due a property tax credit or other credits, filing is the only way to claim them.

Nonresidents who worked in Vermont during the year may also need to file, even if they live elsewhere. Vermont taxes income earned within the state, so if you worked here part of the year, you report that portion on a Vermont return.

Tax withholding and estimated payments

If you're an employee, your employer withholds Vermont income tax from your paycheck based on the W-4 form you complete. The withholding is supposed to cover your state tax liability for the year. If too much is withheld, you get a refund when you file. If too little is withheld, you owe when you file.

Self-employed people and those with income not subject to withholding may need to make quarterly estimated tax payments. These are due April 15, June 15, September 15, and January 15. If you expect to owe more than $500 in state tax and haven't had enough withheld, the Vermont Department of Taxes recommends making estimated payments to avoid penalties.

You can adjust your withholding at any time by submitting a new W-4 to your employer. If your income changes mid-year or you have a major life event, updating your withholding can help you avoid a large bill or refund at tax time.

Credits that reduce Vermont income tax

Vermont offers several credits that lower your tax bill. The property tax credit is available to renters and homeowners with moderate income. It's based on your income and the property taxes or rent you paid during the year. The credit phases out as income rises, so higher earners don't receive it.

The federal tax credit allows you to subtract a portion of federal income tax paid from your Vermont tax. This prevents double taxation on the same income. You calculate it based on your federal tax liability.

Vermont also has a dependent exemption credit and credits for child and dependent care expenses. These work differently than federal credits — they reduce your tax owed rather than reducing your taxable income. Check the VT-100 instructions or the Vermont Department of Taxes website to see which credits explore to your situation.

Deductions available on Vermont returns

Vermont allows a standard deduction, similar to the federal return. The amount depends on your filing status and age. You can use the standard deduction or itemize deductions if itemizing gives you a larger deduction — but Vermont's itemized deductions are generally limited to what the federal return allows.

Self-employed people can deduct half of their self-employment tax from Vermont income. This is the same deduction available on the federal return. You calculate it on Schedule SE and carry it to your Vermont return.

Vermont does not allow a separate state-level deduction for federal taxes paid, though the federal tax credit serves a similar purpose. Retirement income, including Social Security, is generally not taxed by Vermont if you meet age and income requirements, but the rules are specific — check the instructions or contact the department if you're unsure whether your retirement income is taxable.

Nonresidents and part-year residents

If you moved to or from Vermont during the year, you file as a part-year resident. You report income earned while a Vermont resident on your Vermont return and income earned while a nonresident only on your federal return. This requires tracking when you established or left residency.

Nonresidents who worked in Vermont pay tax only on income earned in the state. If you lived in New Hampshire but worked in Vermont, you file a Vermont return reporting only your Vermont wages. Vermont has reciprocal agreements with some neighboring states that may affect how you file — check with the Vermont Department of Taxes if you live near the border and work across it.

Military members stationed in Vermont are generally not considered Vermont residents for tax purposes, even if they live here. Spouses and dependents may have different rules depending on their own income and status.

Frequently Asked Questions

Do I have to pay Vermont income tax if I'm retired?

It depends on your income sources. Social Security is generally not taxed by Vermont if you meet age and income thresholds. Distributions from traditional IRAs and 401(k)s are taxable. Pensions may or may not be taxable depending on the source. You'll need to review your specific income to know whether you have to file.

What if I didn't file a Vermont return in a previous year?

Contact the Vermont Department of Taxes. If you owed tax and didn't file, penalties and interest accrue. Filing late is still better than not filing — the department can work with you on a payment plan. If you're due a refund, there's a time limit to claim it, typically three years from the original due date.

Can I deduct student loan interest on my Vermont return?

Vermont follows federal rules on student loan interest. You can deduct up to $2,500 of student loan interest paid during the year, subject to income limits. The deduction is taken on your federal return and carries over to your Vermont return in most cases.

Do I owe Vermont tax on income from out-of-state investments?

Yes. Vermont taxes all income of residents, including investment income earned anywhere. If you're a Vermont resident, capital gains, dividends, and interest from investments outside the state are taxable in Vermont. Nonresidents pay Vermont tax only on income earned within the state.

What's the important date to file my Vermont return?

Vermont follows the federal important date, which is typically April 15. If April 15 falls on a weekend or holiday, the important date moves to the next business day. You can request an extension, which gives you until October 15 to file, but taxes are still due by April 15 — an extension only extends the filing important date, not the payment important date.