Every year, Vermont welcomes tens of thousands of new students to college and university campuses and towns. For most students, part of the plan involves earning income to make on- or off-campus life and education in general more affordable. Whether your plans include work-study opportunities on campus, finding employment at a local business, making the most of your education related financial investments, or paying student loans, we’re here to help you learn how to file and pay your taxes.
We have compiled a list of resources and important income tax information for students. If this is your first time filing a return, we recommend reviewing information for first-time filers.
To get started:
Download federal forms by visiting the IRS website
Download Vermont state forms through our website
Students may qualify to file online for free through Free File
Students may also qualify for free help through AARP and IRS volunteer tax assistance programs.
Income Tax Information for Vermonters with Student Loans
Student Loan Debt Forgiven by the Federal Government
There are currently several ways student loans can be forgiven by the federal government. Forgiven federal student loan debt is not included in federal adjusted gross income (AGI), which is the basis for Vermont taxable income. Accordingly, Vermont does not tax student loan debt forgiven by the federal government. There is no need to include forgiven federal student loan debt on a Vermont personal income tax return.
Income Tax Exemption for Student Loan Interest
Vermont resident taxpayers may fully deduct all student loan interest payments that were not already deducted from adjusted gross income on their federal income tax return. This exemption is available to Vermont resident taxpayers with AGIs of $120,000 or less for single filers, or AGIs of $200,000 or less for joint filers.
The Federal student loan interest deduction is limited to $2,500 and is available to single filers with AGIs of $70,000 and under, and to joint filers with AGIs of $140,000 and under. The Vermont deduction allows these filers to deduct any remaining student loan interest payments above $2,500 from their Vermont taxable income.
Please note that a taxpayer cannot deduct student loan interest paid on a loan that is in someone else’s name, such as a dependent. Similarly, a dependent cannot deduct student loan interest on their return if someone else paid the interest.
Use of Vermont Higher Education Investment Plan (VHEIP) Account also know as Vermont 529 Plan (VT529) to Pay Student Loans
Vermont allows a tax credit for contributions to a VHEIP account. The credit amount is 10% of the first $2,500 contributed per taxpayer per beneficiary to a beneficiary’s account. Distributions from the account must be for specific allowable purposes or else penalties apply.
One allowed use is for qualified higher education expense loan repayment for federal student loans. The loan repayment exception is limited to loans used exclusively for costs of attendance to an approved postsecondary education institution. For more information on VHEIP accounts, see tax credits available to individuals.