How Vermont taxes retirement income
Vermont does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are partly taxed (there is an exclusion, then the rest is taxed). Social Security: Vermont's dedicated, dated 'Tax Year 2025' exemption page (the most current/most granular primary source, superseding an inconsistent older Departmental page, see verify-notes) states the exemption applies IN FULL to federally-taxable Social Security benefits for AGI up to $55,000 (single/MFS/HoH/widow(er)) or $70,000 (married/civil-union filing jointly); phases out smoothly (a linear formula: (threshold ceiling - AGI) / $10,000, times the taxable benefit) between $55,000-$64,999 (single) or $70,000-$79,999 (joint); and provides NO exemption at AGI $65,000+ (single) / $80,000+ (joint), i.e., benefits are fully taxed as ordinary income above those ceilings. Pension/401(k)/IRA: Vermont provides NO general exclusion for private-employer pensions or personal 401(k)/403(b)/IRA withdrawals, those are fully taxed as ordinary Vermont income at the regular graduated rates, a common misconception this contract flags as a trap. The ONLY retirement-income exclusions are three narrow, mutually-exclusive-with-each-other-and-with-the-SS-exemption $10,000 exclusions: (1) Civil Service Retirement System (CSRS) annuities, (2) other U.S./state government CONTRIBUTORY pension/annuity/retirement systems whose underlying earnings were NOT covered by Social Security (i.e., specific public-sector plans, not ordinary private pensions), and (3) military retirement pay, each available only if AGI is $60,000 or less (single/HoH) or $75,000 or less (joint), as a cliff (no phase-out, unlike the SS exemption). A taxpayer may claim only ONE of the four exemptions (SS, CSRS, other-government, military) in a given year even if more than one would otherwise apply. Because the general pension/401(k)/IRA exclusion is 'no' for the vast majority of retirees but a real subset (federal/certain state pensioners, military retirees) get up to $10,000 excluded, 'taxesPensionIncome' is marked partial rather than a flat yes, see note above for the narrow scope.
Retirement income tax in Vermont, at a glance
| Income type | Taxed by Vermont? |
|---|---|
| Social Security | Yes |
| Pensions | Partially (exclusion applies) |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | Estate tax (exemption $5,000,000) |
| Avg. property tax rate | 1.51% of home value |
Does Vermont tax Social Security benefits?
Yes, Vermont taxes some Social Security income.
Does Vermont tax pensions and 401(k) or IRA withdrawals?
Partly. Social Security: Vermont's dedicated, dated 'Tax Year 2025' exemption page (the most current/most granular primary source, superseding an inconsistent older Departmental page, see verify-notes) states the exemption applies IN FULL to federally-taxable Social Security benefits for AGI up to $55,000 (single/MFS/HoH/widow(er)) or $70,000 (married/civil-union filing jointly); phases out smoothly (a linear formula: (threshold ceiling - AGI) / $10,000, times the taxable benefit) between $55,000-$64,999 (single) or $70,000-$79,999 (joint); and provides NO exemption at AGI $65,000+ (single) / $80,000+ (joint), i.e., benefits are fully taxed as ordinary income above those ceilings. Pension/401(k)/IRA: Vermont provides NO general exclusion for private-employer pensions or personal 401(k)/403(b)/IRA withdrawals, those are fully taxed as ordinary Vermont income at the regular graduated rates, a common misconception this contract flags as a trap. The ONLY retirement-income exclusions are three narrow, mutually-exclusive-with-each-other-and-with-the-SS-exemption $10,000 exclusions: (1) Civil Service Retirement System (CSRS) annuities, (2) other U.S./state government CONTRIBUTORY pension/annuity/retirement systems whose underlying earnings were NOT covered by Social Security (i.e., specific public-sector plans, not ordinary private pensions), and (3) military retirement pay, each available only if AGI is $60,000 or less (single/HoH) or $75,000 or less (joint), as a cliff (no phase-out, unlike the SS exemption). A taxpayer may claim only ONE of the four exemptions (SS, CSRS, other-government, military) in a given year even if more than one would otherwise apply. Because the general pension/401(k)/IRA exclusion is 'no' for the vast majority of retirees but a real subset (federal/certain state pensioners, military retirees) get up to $10,000 excluded, 'taxesPensionIncome' is marked partial rather than a flat yes, see note above for the narrow scope.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- Vermont taxation of retirement income (Social Security, pensions, 401(k)/IRA): Vermont Department of Revenue / Taxation.
- Vermont estate / inheritance tax: Vermont tax authority.