Vermont — Personal Income Tax

Vermont requires individuals, trusts, and estates to file a state income tax return if they are required to file a federal income tax return and meet one of three conditions: (1) earned or received more than $100 of Vermont income, (2) earned or received more than $1,000 in gross income from Vermont sources listed in 32 V.S.A. § 5823(b)(1)–(6) (whether or not a resident), or (3) have a tax liability under Vermont's personal income tax chapter. This filing obligation applies to residents, part-year residents, and nonresidents who earned Vermont income.

The return must be filed on or before the date the federal income tax return is originally due, or by an extended due date granted by the Commissioner under 32 V.S.A. § 5868.

Source: 32 V.S.A. § 5861

Vermont imposes a progressive personal income tax on individuals, estates, and trusts. The statutory framework is set in 32 V.S.A. § 5822, which prescribes four marginal tax brackets with rates of 3.35%, 6.6%, 7.6%, and 8.75%. Bracket thresholds are indexed annually for inflation using the federal Consumer Price Index. The precise dollar cutoff for each bracket varies by filing status (single, married filing jointly, married filing separately, head of household, and estate/trust).

2026 Bracket Thresholds: For tax year 2026, the official Vermont Joint Fiscal Office "Fiscal Facts" report confirms the following rate brackets for single filers (thresholds differ by status):

• 3.35% on taxable income up to $50,750
• 6.6% on taxable income over $50,750 up to $122,850
• 7.6% on taxable income over $122,850 up to $256,300
• 8.75% on taxable income over $256,300

Bracket thresholds for other filing statuses are also annually updated and published by the Vermont Department of Taxes and the Joint Fiscal Office. Married filing jointly thresholds for 2026 are: up to $85,600 (3.35%), $85,600–$206,700 (6.6%), $206,700–$431,100 (7.6%), and over $431,100 (8.75%). For heads of household: up to $68,450 (3.35%), $68,450–$165,500 (6.6%), $165,500–$346,450 (7.6%), and over $346,450 (8.75%).

Estates and trusts use the separate schedule under § 5822(d), with brackets and rates also indexed by statute. Practitioners must consult annual tables for exact thresholds per filing status and tax year.

Inflation Adjustment Mechanism: The statute requires the Commissioner to adjust each bracket annually for inflation. The annual bracket tables are published by both the Department of Taxes and the Legislative Joint Fiscal Office. Practitioners should refer to the most recent official tables for the current-year thresholds applicable to their filing situation.

Source: 32 V.S.A. § 5822 Source: Vermont Joint Fiscal Office, Fiscal Facts 2026, p. 15 Table 11

Vermont personal income tax begins with federal adjusted gross income (AGI) as the tax base for individuals. The statute defines "taxable income" as federal AGI determined without regard to federal bonus depreciation (26 U.S.C. § 168(k)), increased by certain additions such as interest from non-Vermont state and local obligations, and decreased by specified subtractions including Vermont's standard deduction, personal exemptions, and capital gains exclusions. This definition applies to tax years beginning on or after January 1, 2018; prior tax years used federal taxable income as the starting point.

Source: 32 V.S.A. § 5811 (Definitions; see "taxable income")

An individual qualifies as a Vermont resident for personal income tax purposes during any part of the taxable year in which either (1) the individual is domiciled in Vermont, or (2) the individual maintains a permanent home in Vermont and is physically present in the state for more than 183 days of the taxable year. Domicile means the place where an individual has a true, fixed, permanent home and to which place, whenever absent, the individual has the intention of returning. Part-year residents are taxed as residents only for the portion of the year during which they meet one of these two tests.

Source: 32 V.S.A. § 5811(11) and Vermont Reg. § 1.5811(11)(A)(i)

Vermont taxes nonresident individuals, estates, and trusts on six specific categories of Vermont-source income, as enumerated in 32 V.S.A. § 5823(b). A nonresident must include each category in Vermont income to the extent it is required to be included in federal adjusted gross income (or gross income for estates and trusts).

The six statutory categories are:

1. Rents and royalties derived from the ownership of property located within Vermont.

1. Gains from the sale or exchange of property located within Vermont.

1. Wages, salaries, commissions, or other income received with respect to services performed within Vermont. The statute excludes military pay for full-time active duty with the U.S. Armed Services, funds received through the federal Armed Forces Educational Loan Repayment Program under 10 U.S.C. chapters 109 and 1609, and (subject to an AGI limit) the first $2,000 of military pay for unit training in Vermont by National Guard and U.S. Reserve personnel.

1. Business, trade, occupation, or profession income to the extent the business, trade, occupation, or profession is carried on within Vermont. This includes compensation received (A) under an agreement not to compete with a business operating in Vermont, and (B) for goodwill associated with the sale of a Vermont business.

1. Deferred compensation that was previously deferred under a nonqualified deferred compensation plan and that would have been included in Vermont income if it had not been deferred, plus income derived from such previously deferred income.

1. Vermont lottery proceeds from any Vermont state lottery, tri-state lottery, or multijurisdictional lottery ticket paid to a person who purchased the ticket in Vermont, including payments received from a third party for the transfer of rights to future proceeds; the Commissioner may require withholding from lottery payments.

Business income apportionment: For category (4), when a nonresident's business, trade, occupation, or profession is carried on in Vermont and at least one other jurisdiction, Vermont applies an apportionment methodology. Beginning with tax years starting on or after January 1, 2023, Vermont uses a single sales factor apportionment calculation (replacing the prior three-factor method) to allocate apportionable business income to Vermont, consistent with the corporate income tax apportionment regime. Market-based sourcing for services and intangibles has been in effect since January 1, 2020, under 32 V.S.A. § 5833 and Vermont Regulation § 1.5833. Nonresident individuals with multistate business income typically use Schedule BI-477 to calculate the Vermont apportionment percentage.

Web-hosting safe harbor: Under 32 V.S.A. § 5823(d), Vermont income does not include income of a nonresident from certain web-related activities that, standing alone, would not constitute nexus: ownership of data or programming code in Vermont, ownership of or receipt of services from computer servers in Vermont, or receipt of computer processing or web hosting services from a Vermont provider. Income received through a partnership, LLC, or trust is also excluded if the entity's Vermont activities are limited to these enumerated activities plus activities necessary to create or maintain a website.

Services sourced by physical performance: The statute sources wages, salaries, commissions, and "other income" under category (3) based on where services are performed—inside Vermont. The Vermont Department of Taxes has clarified that for a nonresident employee who lives out of state but whose employer is in Vermont, income earned while working remotely at the employee's home location outside Vermont is not Vermont-source income and is not subject to Vermont income tax, even though the employer is located in Vermont.

Source: 32 V.S.A. § 5823 Source: 32 V.S.A. § 5833 Source: Vermont Dept. of Taxes, Nonresident with Earned Vermont Income Source: Schedule BI-477 Instructions (2023)

Vermont starts with federal adjusted gross income (federal AGI) as the starting point for calculating taxable income, then applies state-specific additions and subtractions enumerated in 32 V.S.A. § 5811(21). The statute specifies that federal AGI is determined "without regard to" federal bonus depreciation under 26 U.S.C. § 168(k), meaning Vermont requires separate timing for depreciation deductions. Taxpayers report these modifications on Schedule IN-112.

Additions to federal AGI

Under 32 V.S.A. § 5811(21)(A), Vermont requires individuals to increase federal AGI by the following items, to the extent such income is excluded from federal AGI:

1. Interest income from non-Vermont state and local obligations — 32 V.S.A. § 5811(21)(A)(i). Interest from bonds or obligations issued by states other than Vermont, or by political subdivisions of other states, must be added back.

1. Dividends or other distributions attributable to non-Vermont obligations — 32 V.S.A. § 5811(21)(A)(ii). To the extent distributions from any fund are attributable to non-Vermont state or local obligations, they must be added back.

Subtractions from federal AGI

Under 32 V.S.A. § 5811(21)(B), Vermont allows individuals to decrease federal AGI by the following items, to the extent such income is included in federal AGI:

1. Income exempted from state taxation under federal law — 32 V.S.A. § 5811(21)(B)(i). This category includes interest income from obligations of the United States, which federal law preempts states from taxing. The statute does not define the full scope of this category beyond federal preemption.

1. Adjusted net capital gain income — 32 V.S.A. § 5811(21)(B)(ii). The statute permits a subtraction calculated under one of two alternatives (the taxpayer elects which to use):

• First $5,000 of adjusted net capital gain income, where "adjusted net capital gain" has the meaning in 26 U.S.C. § 1(h), or

• Forty percent of adjusted net capital gain income from the sale of assets held by the taxpayer for more than three years, except gains from:
• (I) any real estate (or portion thereof) used by the taxpayer as a primary or non-primary residence;
• (II) depreciable personal property other than farm property and standing timber; or
• (III) stocks and bonds publicly traded or traded on an exchange, or any other financial instruments, regardless of whether sold by an individual or business.

The statute caps the total decrease under subdivision (ii) at "40 percent of federal taxable income or $350,000.00, whichever is less." For tax years beginning on or after January 1, 2018, when the tax base switched from federal taxable income to federal AGI, practitioners should note that the cap references "federal taxable income," which may create an interpretive question about how to apply the cap under the current AGI-based regime.

1. Recapture of state and local income tax deductions — 32 V.S.A. § 5811(21)(B)(iii). To the extent a state or local income tax refund or credit is included in federal AGI because it was deducted in a prior year, the taxpayer subtracts the portion that was not taken against Vermont income tax.

1. Social Security and certain retirement income — 32 V.S.A. § 5811(21)(B)(iv). The statute allows a subtraction for "the portion of certain retirement income and federally taxable benefits received under the federal Social Security Act that is required to be excluded under section 5830e of this chapter." Section 5830e is cross-referenced for the operative exclusion rules and income thresholds; the statute does not spell out those thresholds in § 5811(21)(B)(iv) itself.

1. Federal deductions disallowed for cannabis businesses — 32 V.S.A. § 5811(21)(B)(v). The statute permits a subtraction equal to "the amount of any federal deduction or credit that the taxpayer would have been allowed for the cultivation, testing, processing, or sale of cannabis or cannabis products as authorized under 7 V.S.A. chapter 33 or chapter 37" but for federal prohibition. The subtraction restores Vermont deductibility for state-legal cannabis activity.

1. Student loan interest — 32 V.S.A. § 5811(21)(B)(vi). Vermont allows a subtraction for interest paid on qualified education loans, subject to two conditions:

• The interest must not have been deducted from federal adjusted gross income (i.e., it was not claimed as an above-the-line federal deduction), and
• The taxpayer must be a "qualified resident taxpayer," which subdivision (29) of § 5811 defines as a Vermont resident whose adjusted gross income is equal to or less than $120,000 (for single, head of household, or married filing separately) or $200,000 (for married filing jointly).

The statute cross-references 26 U.S.C. § 221(d) for the definitions of "qualified education loan" and "eligible educational institution."

Other adjustments referenced in practice

Schedule IN-112 includes additional line items for adjustments such as "adjustment for prior years' bonus depreciation" and a medical expense deduction available under 32 V.S.A. § 5811(21)(C)(iv). The latter subdivision allows itemizers to subtract an amount equal to the federal medical expense deduction under 26 U.S.C. § 213, minus the Vermont standard deduction and personal exemptions taken, minus amounts attributable to continuing care retirement community fees exceeding qualified long-term care insurance deductibility limits. Practitioners should consult the current-year Schedule IN-112 instructions for computational guidance on these and other subtractions not fully detailed in the definitional statute.

After these modifications, Vermont subtracts its own standard deduction and personal exemption amounts (defined separately in § 5811) to arrive at Vermont taxable income, which is then subject to the progressive rate tables in 32 V.S.A. § 5822.

Source: 32 V.S.A. § 5811(21) Source: Vermont Dept. of Taxes, Taxable Income

For tax years beginning after January 1, 2018, Vermont’s personal income tax base is federal adjusted gross income (AGI) with certain Vermont-specific modifications, per Act 73 of 2017. However, the statutory cap on the personal income tax subtraction for net capital gain remains tied to the taxpayer’s federal taxable income (FTI), not AGI.

How the cap works:

Under 32 V.S.A. § 5811(21)(B)(ii), a Vermont taxpayer may elect to subtract either (a) the first $5,000 of adjusted net capital gain income, or (b) 40% of adjusted net capital gain income from the sale of qualifying property held more than three years, with certain exceptions. But the statute provides: “the total amount of decrease under this subdivision…shall not exceed 40 percent of federal taxable income or $350,000, whichever is less.”

Post-2018 mechanics:

• Vermont taxable income starts with federal AGI, not federal taxable income.
• The capital gain subtraction (either $5,000 or the 40% option for qualifying property) is calculated normally under the AGI base.
• The cap is still computed using the taxpayer’s federal taxable income as determined on the federal return, even though Vermont’s base is AGI. That is, a taxpayer determines their federal taxable income after federal deductions/standard deduction and applies the 40% or $350,000 limit to the exclusion, no matter how high AGI may be.

No statutory amendment or official guidance has shifted this cap to AGI or provided explicit rulemaking to reconcile it; available legislative, DOR, and tax expenditure report summaries reflect continued use of FTI for the cap after the tax base change. Practitioners should use federal taxable income for this limit, as printed on the federal individual return, for returns in tax years 2018 and later.

Source: 32 V.S.A. § 5811(21)(B)(ii) Source: Vermont Dept. of Taxes, 2018 Legislative Highlights Source: 2025 Vermont Tax Expenditure Report

Vermont law provides several personal income tax exclusions for Social Security and retirement benefits, each subject to specific federal adjusted gross income (AGI) thresholds and phase-out ranges, as detailed in 32 V.S.A. § 5830e. These apply for tax years as currently enacted (2026). The operative exclusions and thresholds are as follows:

1. Social Security benefits exclusion (32 V.S.A. § 5830e(a)):

• Full exclusion: Taxpayers may exclude all federally taxable Social Security benefits from Vermont income if their federal AGI is $55,000 or less (single, head of household, married filing separately, or surviving spouse), or $70,000 or less (married filing jointly).
• Phase-out range: The exclusion is reduced for AGIs between $55,000 and $65,000 (single/etc.) or between $70,000 and $80,000 (MFJ). For AGIs at or above $65,000 (single/etc.) or $80,000 (MFJ), no exclusion is allowed. The reduction is proportional within the phase-out window.

2. Civil Service Retirement System (CSRS) exclusion (32 V.S.A. § 5830e(b)):

• Up to $10,000 exempt: Taxpayers may exclude up to $10,000 of CSRS income if federal AGI does not exceed the above Social Security limits ($55,000 single/etc.; $70,000 MFJ).
• Phase-out: Same ranges and mechanics as the Social Security exclusion. The amount is proportionally reduced as AGI rises from $55,000 to $65,000 (single/etc.) or $70,000 to $80,000 (MFJ), with no exclusion at or above the upper threshold.

3. Other contributory retirement exclusions (32 V.S.A. § 5830e(c)):

• Up to $10,000 exclusion for certain "taxable retirement income from a contributory retirement system" is allowed under the same AGI and phase-out limits as CSRS (see above). This does not include IRAs, Keogh, or similar plans.

4. U.S. military retirement and survivor benefit exclusions (32 V.S.A. § 5830e(d)):

• Full exclusion if federal AGI is $125,000 or less for all filing statuses.
• Phase-out: The exclusion is reduced proportionally between $125,000 and $175,000 AGI, and eliminated entirely for federal AGI at or above $175,000.

Calculation mechanics:

• Phase-out amounts are determined by statutory formulas, generally proportionally reducing the maximum allowable exclusion as AGI rises through the phase-out band. See the full text of § 5830e for the reduction formula.
• Taxpayers cannot claim multiple exclusions under subdivisions (a), (b), or (c) for the same income—each applies separately and does not duplicate the other.

Source: 32 V.S.A. § 5830e

Vermont requires individuals to make estimated personal income tax payments if they expect to owe at least $500 in tax, after subtracting withholding and credits, for the taxable year. This obligation is set out in 32 V.S.A. § 5851, which requires estimated payments in any year that liability exceeds $500.

Safe harbor thresholds: Vermont’s safe harbor for avoiding underpayment penalty is generally:

• Payment of at least 90% of the current year’s tax due, or
• Payment of 100% of the prior year’s tax (if the prior year was a full 12 months and a return was filed).

Unlike federal law, Vermont statutes and Department guidance do not specify a 110% safe harbor for higher income taxpayers; available authority only provides the 90%/100% options. The Department’s guidance describes Vermont’s rules as generally aligned with federal safe harbor but does not mention a higher threshold. As of 2026, there is no Vermont-specific 110% provision.

Quarterly due dates: Estimated tax payments are due in four installments:

• 1st payment: April 15
• 2nd payment: June 15
• 3rd payment: September 15
• 4th payment: January 15 of the following year

If the deadline falls on a weekend or legal holiday, Vermont follows the standard practice of moving the due date to the next business day (noted in DOR filing instructions).

Special rules for farmers and fishermen: Taxpayers whose gross income for either the preceding or current year is at least two-thirds from farming or fishing may:

• Make a single estimated payment by January 15 of the following year, or
• File and pay the entire Vermont income tax due by March 1 without penalty, in lieu of making quarterly estimated payments.

Authority for these exceptions is at 32 V.S.A. § 5852; the Department's estimated payments page provides a summary of these special rules.

Other exceptions: Individuals who will owe less than $500 in Vermont tax after withholding and credits are not required to make estimated payments. If all required withholding is satisfied, no estimated payments are due. Statutes and current DOR guidance do not detail further exceptions or administrative relief relevant to most individual filers—penalty abatement or reasonable cause relief is not specifically addressed in the cited authority as of June 2026.

Source: 32 V.S.A. § 5851 Source: 32 V.S.A. § 5852 Source: Vermont Department of Taxes — Estimated Payments

Employers in Vermont are required to withhold Vermont income tax from wages and other payments to Vermont residents, or to nonresidents for services performed within Vermont, where such payments are subject to federal income tax withholding. The statutory basis for Vermont income tax withholding is found at 32 V.S.A. § 5844; operational guidance is issued each year by the Vermont Department of Taxes.

2026 update – Change in annual exemption per allowance:

• Effective with Vermont payrolls beginning in Pay Period 09 of 2026, the annual exemption amount per withholding allowance has increased from $5,300 (for 2024–2025) to $5,400. This change impacts all employers who calculate Vermont withholding via the wage-bracket tables or percentage-method charts, as the per-allowance reduction in taxable wages must now use $5,400 per claimed allowance. Employers should ensure current payroll software and manual calculations adopt this new figure for the 2026 tax year and after.
• This change is confirmed by the National Finance Center (USDA NFC) Vermont withholding bulletin dated June 9, 2026, and by the most recent DOR withholding instructions effective 2026.

Calculation of withholding:

• Vermont withholding is determined using state-specific wage-bracket tables or percentage-method charts, based on filing status, allowances, and any additional withholding indicated on Vermont Form W-4VT (Employee's Withholding Allowance Certificate). The per-allowance exemption is now $5,400 for calendar year 2026 and forward.
• Employees should submit or update Form W-4VT to accurately reflect filing status, dependent allowances, and any additional amounts.
• If an employee does NOT submit W-4VT, employers may use the federal Form W-4 but must increase any specified additional withholding (entered on federal W-4, Line 4c) by 30% for Vermont withholding (2024–2026 instructions, unchanged).

Multistate/nonresident proration:

• When a nonresident employee works both in and out of Vermont, employers calculate full Vermont withholding on aggregate wages, then prorate: Multiply total Vermont withholding by the portion of hours worked in Vermont (e.g., 16/40 if 16 of 40 hours were in Vermont).

Employer liability and records:

• Vermont law requires employers to keep wage and withholding records for at least three years and to remain liable for any tax not withheld or remitted due to failure to follow state guidance.

Cited authority and rates:

• Withholding rates and bracket structures remain at four brackets (3.35%, 6.6%, 7.6%, 8.75% for 2026). The change in per-allowance exemption is the only material update. All other protocols remain aligned with prior years' official instructions.

Source: NFC Vermont Income Tax Withholding Bulletin, June 9, 2026 Source: Vermont Dept. of Taxes, 2024 Withholding Instructions Source: Vermont Form W-4VT

Not yet human confirmed. This update reflects the change in per-allowance exemption for 2026, with all other withholding mechanics, rates, and interplays unchanged from prior instructions and authority.

Vermont allows resident and part-year resident taxpayers to claim a credit against Vermont personal income tax for income taxes paid to another U.S. state, political subdivision, or the District of Columbia on Vermont-taxable income that is also taxed by that other jurisdiction in the same taxable year.

Statutory authorization:

• The credit is authorized by 32 V.S.A. § 5825(a). The credit is designed to prevent double taxation of the same income by Vermont and another state or D.C. Note: The credit does not apply to taxes paid to a foreign country. Vermont does not offer a credit to nonresidents for taxes paid to their state of residency.

Eligibility requirements:

1. The taxpayer must be a Vermont resident or part-year resident; nonresidents do not qualify.
2. The credit applies only to net income taxes "legally due" to another state or D.C. and paid by the taxpayer for the taxable year on income subject to Vermont tax.
3. The same income must be included in the Vermont tax base and must have been taxed by the other jurisdiction.

Limitations and calculation:

• The credit is limited to the Vermont tax attributable to the income subject to tax in both jurisdictions. In other words, the credit is the lesser of (A) the income tax paid to the other state on the overlapping income, or (B) the Vermont tax computed on that income.
• No credit is allowed for “franchise, excise, unincorporated business, or occupation taxes” unless they are taxes on net income (per the statute and Department instructions).
• The statute prohibits a credit for taxes on income not subject to Vermont tax.

Filing procedures:

• Vermont resident and part-year resident filers must complete Schedule IN-112, Part IV, to compute and claim the credit. Supporting documentation (typically the other state's tax return and proof of payment) must be attached to the Vermont return. Instructions require retention of all relevant paperwork.

Reference to official forms/guidance:

• 32 V.S.A. § 5825(a) — primary statutory authority.
• Vermont Department of Taxes, Schedule IN-112 instructions — calculation, documentation, and examples of eligible and ineligible taxes are detailed in official instructions published annually by the Department.

Source: 32 V.S.A. § 5825 Source: Vermont Department of Taxes, IN-112 Instructions (2023)