Vermont retirement taxes at a glance (2026)
| State income tax | Graduated, top rate 8.75%Vermont has a graduated income tax from 3.35% to 8.75%. |
|---|---|
| Social Security | TaxedSocial Security is fully exempt if AGI is $55,000 or less (single) or $70,000 or less (joint); the exemption phases out over the next $10,000 and ends at $65,000 (single) or $80,000 (joint). |
| Pensions | TaxedPrivate pensions are fully taxed. Only some government pensions qualify for a partial exclusion. |
| 401(k) and IRA withdrawals | TaxedIRA and 401(k) withdrawals are fully taxed at regular rates. |
| Government pensions | Partly taxedUp to $10,000 of CSRS or other eligible non-Social-Security government pension income can be excluded under the same AGI limits as the Social Security exemption; you must choose this or the Social Security exemption, not both. |
| Military retirement pay | Partly taxedFrom tax year 2025, all military retirement and survivor benefits are exempt if AGI is $125,000 or less, with a phase-out up to $175,000. This exclusion can be claimed along with the other retirement exclusions. |
| Estate tax | Yes, above $5,000,000Vermont has an estate tax with a $5 million exclusion and a flat 16% rate on the excess. |
| Inheritance tax | No |
Recent changes and good to know
- Act 71 of 2025 (S.51), signed June 25, 2025 and effective from tax year 2025, raised the Social Security thresholds by $5,000, removed the $10,000 cap on the military retirement exclusion, and let the military exclusion be claimed with other exclusions.
- The Vermont Department of Taxes seniors page still showed pre-Act 71 thresholds when checked.
How to lower your retirement taxes in Vermont
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in Vermont too, so a Roth conversion before retirement can cut state tax later. Try the Roth conversion calculator.
- Watch federal Medicare costs. Large IRA withdrawals can raise your Medicare premiums. Check the 2026 IRMAA brackets.
- Think about your heirs. See what your IRA will really cost your family with the Family Tax Rate calculator.
- Comparing states? These have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
Frequently asked questions
Does Vermont tax retirement income?
Mostly yes: Vermont taxes pensions and IRA/401(k) withdrawals in full and taxes Social Security for higher earners, but it exempts Social Security and military retirement for low and middle incomes.
Does Vermont tax Social Security?
Social Security is fully exempt if AGI is $55,000 or less (single) or $70,000 or less (joint); the exemption phases out over the next $10,000 and ends at $65,000 (single) or $80,000 (joint).
Does Vermont tax pensions?
Private pensions are fully taxed. Only some government pensions qualify for a partial exclusion.
Does Vermont tax 401(k) and IRA withdrawals?
IRA and 401(k) withdrawals are fully taxed at regular rates.
Does Vermont tax military retirement pay?
From tax year 2025, all military retirement and survivor benefits are exempt if AGI is $125,000 or less, with a phase-out up to $175,000. This exclusion can be claimed along with the other retirement exclusions.
Does Vermont have an estate or inheritance tax?
Vermont has an estate tax with a $5 million exclusion and a flat 16% rate on the excess.
Sources (last verified 2026)
- Seniors and Retirees — Vermont Department of Taxes (2026)
- S.51 as passed (Act 71) — Vermont Joint Fiscal Office (2025)
- Targeted Tax Relief (S.51 / Act 71) — Campaign for Vermont (2025)
- How 2025 Tax Law Changes Could Mean Bigger Refunds for Vermonters — Davis & Hodgdon CPAs (2025)
- State Individual Income Tax Rates and Brackets, 2026 — Tax Foundation (2026)
- Does Vermont Tax Social Security and Pensions? — Taxstra (2026)
Educational content only, not tax, legal or investment advice. Plans and tax laws change; confirm details with your employer's plan documents or your state revenue department. Smart Financial Lifestyle is not affiliated with any employer named on this site.