If you are a senior or retired taxpayer, certain Vermont tax rules may apply to you. Below is a listing of Vermont tax information that you should review to see if it applies to your situation. This is not a comprehensive list and is not meant to provide tax advice. As always, we recommend consulting with a qualified tax professional who can advise you on the appropriate filing status for you, what taxes may apply, and other tax topics. Free tax preparation assistance is available for eligible low-to-middle-income and senior Vermonters.
Tax Deductions, Exemptions, and Credits
Exemption for Social Security Benefits
Recipients of Social Security benefits may be exempt from Vermont tax on part or all of their benefits. If you had Social Security benefits that were taxable in the current tax year as shown on your federal Form 1040, U.S. Individual Income Tax Return, then you may qualify for a Vermont exemption.
For those who are married filing jointly and civil union partner filing jointly, the exemption applies in full up to an AGI of $65,000, phases out between $65,000-$75,000, and does not apply to filers with AGI greater than or equal to $75,000. For all other filing statuses, the Vermont exemption applies in full to an AGI up to $50,000. It then phases out smoothly for filers earning between $50,000-$60,000. It does not apply to single filers with AGI greater than or equal to $60,000. The exemption reduces a taxpayer’s Vermont taxable income before state tax rates are applied.
To see if you qualify, use the worksheet in the instructions for Vermont Schedule IN-112, Vermont Tax Adjustments and Credits. If you qualify, complete, and submit Schedule IN-112 with your IN-111, Vermont Income Tax Return.
Exemption for Civil Service Retirement System (CSRS)
Vermont allows taxpayers who are below certain income thresholds to exclude the first $10,000 of retirement income from the federal Civil Service Retirement System. Joint filers are eligible for a reduction in tax if they earned $75,000 or less and other filers are eligible if they earned $60,000 or less. To see if you qualify, use the worksheet in the instructions for Vermont Schedule IN-112, Vermont Tax Adjustments and Credits. If you qualify, complete, and submit Schedule IN-112 with your IN-111, Vermont Income Tax Return.
Exemption for Other Eligible Retirement Systems
Vermont allows taxpayers to exclude the first $10,000 of retirement income from certain other retirement systems. Income received from a contributory annuity, pension, endowment, or retirement system of the U.S. government or a state government is eligible for a reduction in tax. The exemption only applies to benefits that are based on earnings not covered by the Social Security Act (i.e., earnings that were not subject to Social Security tax withholding). Joint filers are eligible for a reduction in tax if they earned $75,000 or less and other filers are eligible if they earned $60,000 or less. To see if you qualify, use the worksheet in the instructions for Vermont Schedule IN-112, Vermont Tax Adjustments and Credits. If you qualify, complete, and submit Schedule IN-112 with your IN-111, Vermont Income Tax Return.
Exemption for Military Retirement Income
Vermont allows retirees to exclude the first $10,000 of income from military retirement. Retirees are eligible for this exemption if their income falls below the thresholds for the Social Security exemption.
Additional Vermont Standard Deduction for Seniors and the Blind, or Both
Taxpayers who are age 65 or older and/or blind may deduct an additional $1,000 when determining the Vermont Standard Deduction on Form IN-111, Vermont Income Tax Return. To be eligible, you must also have qualified and received the deduction at the federal level. The amount will be adjusted annually for inflation. For more details, read the instructions for Form IN-111, Vermont Income Tax Return.
Property Tax Exemption for Disabled Veterans
Disabled veterans who own their homes may be eligible for a property tax exemption. The exemption reduces the assessed value of your home, lowering your property taxes. You must apply through the Vermont Office of Veterans Affairs by May 1 of each year.
Note: Surviving spouses of veterans who had previously qualified for this exemption may also be eligible if they don’t remarry.
Elderly or Permanently Disabled Tax Credit
This is a tax credit to assist seniors and persons who are disabled with minimal tax-exempt retirement or disability income. If you qualify for the federal Credit for the Elderly or the Disabled, then you may qualify for the Vermont credit, which is 24% of the federal amount.
Income Tax Withholding
Did you know that the IRS has a tax form designed especially for seniors? See Form 1040-SR, Department of the Treasury—Internal Revenue Service U.S. Tax Return for Seniors.
Withholding on Social Security and Other Federal Benefits
The Social Security Administration does not withhold federal and state tax from Social Security benefits. However, if part or all of your benefits are taxable in Vermont, you may want to withhold more state tax from other sources of income.
To do this, you must complete Form W-4VT, Employee’s Withholding Allowance Certificate, and submit it to your employer. Learn more about calculating your Vermont Income Tax Withholding. Estimate the tax on your Social Security benefits and enter the additional amount you want to be withheld from your paycheck where it is requested on the form. An alternative is to pay the estimated tax on your Social Security benefits each quarter using Form IN-114, Individual Income Estimated Tax Payment Voucher.
Withholding on Pensions, Annuities, Supplemental Payments, and Deferred Compensation Payments
Employers must withhold Vermont income tax on payments to Vermont residents when federal withholding is required. Vermont withholding is also required where the recipient elects optional federal withholding and does not specifically state that the payment is exempt from Vermont withholding.
For periodic payments, the tax is computed using the Vermont wage charts or tables. For non-periodic payments, the Vermont withholding can be estimated at 30% of the federal withholding. In all cases, the taxpayer is responsible for ensuring that the correct amount is withheld to avoid underpayment of the Vermont tax liability.
Withholding Under a Non-Qualified Deferred Compensation Plan
When a person makes a payment that was previously deferred under a non-qualified deferred compensation plan, the correct withholding rate is 6% of the deferred payment. The withholding is based on both the deferred payment and any income that may be derived from the deferred compensation.
Death of a Taxpayer
Filing Form IN-111 When a Taxpayer Has Died
When filing Form IN-111, Vermont Income Tax Return, include the name and information of the deceased taxpayer or deceased spouse/civil union on the form if the taxpayer died during the tax year for which you are filing. Check the box (to the right of the box requesting “Driver’s License Number & State”) to indicate that the taxpayer is deceased.
If you are an administrator or executor and want to claim an income tax refund on behalf of the deceased, you must do the following:
- Attach the court certificate showing your appointment as administrator or executor or
- Attach a copy of completed federal Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer
If you have questions, please call (802) 828-6820 for more information.
Filing Form IN-111 as a “Qualifying Widow(er)”
You may file Form IN-111, Vermont Income Tax Return, with the status of “Qualifying Widow(er) only if ALL of the following are true:
- You were eligible to file a joint return with your spouse in the year in which your spouse died (even if you did not file).
- Your spouse died within the two years immediately before the tax year for which you are filing.
- You have not remarried during the current tax year.
- You have at least one dependent child.
If you are a qualifying widow(er), then you are allowed to deduct the same Vermont Standard Deduction amount as “Married Filing Jointly” on your Form IN-111, Vermont Income Tax Return.
Filing a Homestead Declaration for a Deceased Person
A surviving spouse may file Form HS-122, Homestead Declaration, if the residence meets ALL of the following requirements:
- Held by the estate
- Was the homestead of the deceased person at the time of death
- Will not be leased for more than 182 days in the calendar year
Filing a Renter Credit Claim after the Renter Has Died
A Vermont Renter Credit Claim may not be filed on behalf of a deceased person. The right to file a claim is personal to the claimant and does not survive the claimant’s death. Learn more about the Renter Credit program.
Vermont Estate and Fiduciary Information
When a person dies, the person’s estate has the responsibility to file and pay Vermont income tax for the months the person was living and receiving income. In addition, the estate may have a filing requirement for fiduciary and estate forms. Learn more about the responsibilities of the administrator/executor of the estate or fiduciary.