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COVID-19: RESOURCES FOR TAXPAYERS

Unemployment Exclusion Adjustments
Schedule an Appointment
Tax Treatment of Forgiven PPP Loans in Vermont
American Rescue Plan (ARPA): Key Provisions
Guidance for Remote Workers and their Employers
Coronavirus-related Relief for Retirement Plans and IRAs
Resources

Schedule an Appointment

The Department of Taxes is located at 133 State Street in Montpelier. Visitors are encouraged to schedule an appointment by calling (802) 828-2865. Scheduling an appointment helps reduce wait times and ensures a specialist can assist you. Visitors will be required to check in with building security upon arrival.

Tax Treatment of Forgiven PPP Loans in Vermont

The federal CARES Act established the Paycheck Protection Program (PPP) that provided loans to businesses to pay certain business expenses. Subsequently, the Consolidated Appropriations Act of 2021 provided that PPP loan recipients may deduct expenses paid for using PPP loan amounts on their federal income taxes, even if the PPP loans are ultimately forgiven.

As per action taken during the 2021 Vermont legislative session, Vermont is following federal treatment for forgiven PPP loans in tax years 2020 and 2021. This means that for both tax years, forgiven loans are not taxable in Vermont, and ordinarily deductible business expenses paid using forgiven PPP loans are also deductible.

The American Rescue Plan Act (ARPA): Key Provisions

The ARPA contains new tax provisions effective for 2021 and beyond. Some of these required a corresponding change in Vermont law to have that change apply to Vermont state taxes. Some provisions affecting Vermonters are:

Stimulus Payments

The Internal Revenue Service (IRS) has issued all first, second, and third Economic Impact Payments. For more information about the Economic Impact Payments or to learn how to claim a missing payment, please visit their website.

Earned Income Tax Credit (EITC) expansion

  • Effective for tax year 2021, eligibility for the federal EITC is expanded to younger and older workers and workers without qualifying children. Similar to this year, workers can elect to calculate their TY21 credit using the higher of 2019 or 2021 wages. Vermont offers a state credit equal to 36% of the federal EITC.
  • The Vermont Legislature has “linked up” to the 2021 federal tax laws to have this program expansion flow through to the Vermont credit.

Child and Dependent Care Tax Credit (CDCTC) expansion

  • The ARPA significantly expands this federal credit and makes the credit fully refundable for tax year 2021 at the federal level. The ARPA also allows individuals to put $10,500 into a tax-free dependent care Flexible Spending Account, as opposed to the normal $5,000 limit.
  • Vermont offers a nonrefundable state tax credit equal to 24% of the federal credit amount, with lower-income Vermonters eligible for a refundable credit equal to 50% of the federal amount. The Vermont Legislature has “linked up” to the 2021 federal tax laws to have this program expansion flow through to the Vermont credits.

Child Tax Credit Expansion for 2021

  • For tax year 2021, the ARPA significantly expands the federal credit from a partially-refundable $2,000 per eligible child up to a fully-refundable $3,000 per child (and $3,600 for ages 5 and under). The age limit for qualifying children has also been increased from 16 to 17. Families can receive advanced monthly installments of the credit throughout the year. Vermont has no state version of the Child Tax Credit.

Coronavirus-related Relief for Retirement Plans and IRAs

For qualified individuals, the CARES Act allows up to $100,000 of “coronavirus-related distributions” to be excluded from the additional 10% tax on distributions from eligible retirement plans and IRAs. An individual qualifies if either they or their spouse contracted coronavirus or had an adverse negative impact from being quarantined, furloughed, or laid off because of the virus. The individual must certify this to the administrator of a plan.

For personal income tax purposes, the distributions are included in federal gross income over three tax years, with one-third being included in each year, starting with the year the distribution is received. An individual may also choose to include the entire amount in the first year. Distributions that are repaid within three years are not subject to federal personal income tax. Read our frequently asked questions for more information.

Are the COVID-related distributions included in AGI and therefore taxable in Vermont? 

Yes, these distributions will be treated like other distributions and taxed in AGI.  The CARES Act affects AGI by allowing distributions to be taxed over three years. For individuals who choose this option, the distribution income will also be spread across three tax years in Vermont.

Are COVID-related distributions included in Household Income? 

Household Income includes AGI, as well as ROTH IRA distributions that are not included in AGI.  COVID-related distributions will be included in AGI, so will be included in Household Income. The distributions that are spread across three years will also be spread across three years of household income.

Will Vermont’s tax of 24% of a taxpayer’s federal liability for additional taxes on qualified retirement plans apply to these distributions? 

No. Since the COVID-related distributions will be taxed as gross income and will not be subject to the Federal 10% additional tax on distributions from eligible plans, there will not be any additional Vermont tax under this section.

Resources