Vermont is not a tax-free state. Residents and visitors pay a progressive personal income tax that tops out at 8.75%, a 6% general sales tax, property taxes that fund one of the country’s more robust public school systems, and elevated rates on meals, lodging, and alcohol. Independent analyses consistently rank Vermont among the higher-tax states in the country. The state does soften the load with targeted credits and exemptions, particularly for lower-income households, families with young children, retirees drawing Social Security, and military retirees, but anyone moving to Vermont or earning income there should plan on a meaningful tax bill.
What You Pay on Income
Vermont taxes the income of every resident individual, estate, and trust. Your return starts with federal adjusted gross income, then applies Vermont-specific adjustments to reach state taxable income.1Vermont Department of Taxes. Personal Income Tax Four brackets apply: 3.35%, 6.6%, 7.6%, and 8.75%.2Vermont General Assembly. Vermont Code 32 – Tax on Income of Individuals, Estates, and Trusts
Single filers hit the 8.75% top rate at taxable income above $195,450. For married couples filing jointly the threshold is $237,950, and for heads of household it’s $216,700. Bracket thresholds adjust annually for inflation, so the dollar figures shift year to year even when the percentages don’t.2Vermont General Assembly. Vermont Code 32 – Tax on Income of Individuals, Estates, and Trusts
Late or underpaid returns carry a 5% penalty per month on the unpaid balance, capped at 25%. A return filed more than 60 days past the due date also triggers a flat $50 late-filing penalty even when no tax is owed, unless you filed for an extension. Interest runs on top at a rate the Commissioner of Taxes sets each year.3Vermont Department of Taxes. Interest and Penalties
Credits That Can Offset the Bill
Vermont offers a state child tax credit of $1,000 per child aged six or younger at the end of the tax year. The credit begins phasing out once adjusted gross income passes $125,000 regardless of filing status, shrinking by $20 for every additional $1,000 of income, and disappears entirely at $175,000.4Vermont Department of Taxes. Tax Credits and Adjustments for Individuals
Renters who don’t benefit from the property tax credit can claim a separate renter credit. The amount varies by county and the number of bedrooms in the rental, ranging from roughly $1,000 in rural counties to $2,500 in Chittenden County for larger households. Income caps also vary by county: in Chittenden County a single person earning up to about $59,000 may qualify, while the ceiling in more rural counties drops closer to $47,000.5Vermont Department of Taxes. Income Eligibility Limits
What You Pay at the Register
Vermont charges 6% sales tax on most retail purchases of tangible goods, along with certain services and digital products.6Vermont General Assembly. Vermont Code 32 – Imposition of Sales Tax It also applies to utility services like electricity and gas, cable and streaming access, and telecommunications.
Several everyday categories are exempt. Food and food ingredients sold for off-premises consumption are not taxed, though soft drinks are. Prescription drugs, medical equipment, and prosthetic devices are exempt as well.7Vermont General Assembly. Vermont Code 32 – Sales Not Covered Clothing is fully exempt from the state sales tax with no price threshold, though accessories like jewelry and handbags remain taxable.8Vermont Department of Taxes. What is Taxable and Exempt
Since July 2024, all prewritten computer software is taxable regardless of how you receive it, whether downloaded, on physical media, or accessed as a cloud subscription. Digital audiobooks, e-books, music, videos, and ringtones are also taxable. Custom software built to your specifications remains exempt, as do digital photographs.9Vermont Department of Taxes. Prewritten Computer Software
About 34 municipalities have voted to add a 1% local option tax on sales, meals, rooms, or alcohol.10Vermont Department of Taxes. Local Option Tax If you’re shopping in one of them, the effective rate on a taxable item is 7%.
Dining Out, Staying Over, and Cannabis
Meals and lodging carry their own layer, separate from the general sales tax. Prepared meals and restaurant food are taxed at 9%, hotel and lodging rentals at 9%, and alcoholic beverages sold for on-premises consumption at 10%.11Vermont General Assembly. Chapter 225 – Meals and Rooms Tax Each rises further in towns with the 1% local option tax.
Short-term rentals (furnished units rented for fewer than 30 consecutive days and more than 14 days a year) owe the 9% rooms tax plus a 3% short-term rental surcharge that took effect in August 2024. Platforms like Airbnb and Vrbo collect and remit for hosts who book exclusively through them.12Vermont Department of Taxes. Short-Term Rentals
Retail recreational cannabis carries a 14% excise tax on top of the 6% sales tax, making it one of the more heavily taxed consumer products in the state.13Vermont General Assembly. Vermont Code 32 7902 – Cannabis Excise Tax
What You Pay on Your Home
Property tax is where many Vermont homeowners feel the biggest bite. Every property owes two separate levies: a statewide education tax and a municipal tax set by local government. For the FY2026 tax year the statewide education rate is $1.703 per $100 of assessed value for both homestead and nonhomestead properties.14Vermont Department of Taxes. Education Property Tax Rates Municipal rates vary widely with local budgets.
If the home is your primary residence, you must file a Homestead Declaration (Form HS-122) each year by the April income tax deadline. That filing qualifies you for the homestead education rate and the property tax credit. Skip it or file incorrectly and the town can add a penalty of up to 3% of your education tax bill, rising to 8% in towns where misclassification works in your favor.15Vermont General Assembly. Vermont Code 32 5410 – Declaration of Homestead
The property tax credit is the main relief valve for lower- and middle-income homeowners. It reduces the bill based on household income rather than home value. For the 2025 tax year (claimed in 2026), the maximum household income to qualify is $115,400. The credit caps at $5,600 against the state education portion and $2,400 against the municipal portion.16Vermont Department of Taxes. Property Tax Credit You claim it on the same Form HS-122 used for the Homestead Declaration, so there’s no separate application.
What Retirees Pay
Vermont taxes most retirement income at the same progressive rates as wages. Distributions from 401(k) plans and traditional IRAs get no special deduction or exclusion, and pensions from former employers are treated as ordinary income unless a specific exemption applies. Two exemptions matter most.
Social Security benefits are fully exempt from Vermont income tax if you’re a single filer, head of household, or surviving spouse with federal adjusted gross income of $55,000 or less. For married couples filing jointly the full exemption applies at $70,000 or less.17Vermont General Assembly. Vermont Code 32 5830e – Retirement Income; Social Security Income Above those thresholds the exemption phases out gradually, disappearing for single filers at $65,000.18Vermont Department of Taxes. Social Security Exemption
Beginning with the 2025 tax year (filed in 2026), military retirement and survivor benefit income is fully exempt for any filing status with adjusted gross income of $125,000 or less. The exemption phases out between $125,000 and $175,000, with none available at $175,000 or above. The law covers retired pay under Title 10 of the U.S. Code, which includes veterans of the Army, Navy, Air Force, Marines, Coast Guard, Space Force, National Guard, and certain commissioned corps.19Vermont Department of Taxes. Military Personnel
Estate Tax, but No Inheritance Tax
Vermont imposes an estate tax but has no inheritance tax, so beneficiaries themselves owe nothing on what they receive. The estate tax applies only when the deceased person’s total assets exceed $5 million, and estates above that threshold pay a flat 16% on the excess.20Vermont General Assembly. Vermont Code 32 7442a – Imposition of a Vermont Estate Tax and Rate of Tax That exemption keeps most Vermont estates clear.
One detail trips people up: Vermont adds back any taxable gifts the deceased made within two years of death when calculating the estate’s value. This two-year look-back is shorter than the federal equivalent and applies whether or not the gifts were already included in the federal gross estate.21Vermont General Assembly. Chapter 190 – Estate and Gift Taxes Executors must file the Vermont Estate Tax Return within nine months of the date of death, with a six-month filing extension available if requested before the deadline.22Vermont Department of Taxes. Estate Tax