Vermont payroll taxes come in four pieces at the state level: income tax withholding, unemployment insurance, the Child Care Contribution, and the Health Care Fund Contribution Assessment. Employers also need workers’ compensation insurance, and many must facilitate retirement savings through Vermont Saves. Each has its own rate, wage base, and filing rhythm, and the penalties for missing any of them compound monthly.
Income Tax Withholding
Any business paying wages for work performed in Vermont must withhold state income tax, whether or not the employee lives in the state.1Vermont Department of Taxes. Form BR-400 Instructions The amount depends on the employee’s filing status, allowances, and income, all reported on Form W-4VT. Each allowance reduces taxable wages by $5,400 per year.2Vermont Department of Taxes. Form W-4VT – Employee’s Withholding Allowance Certificate Employees set Vermont allowances independently of their federal W-4 because Vermont’s brackets and standard deduction differ from the federal ones.
For 2026, Vermont applies four progressive withholding rates: 3.35 percent, 6.60 percent, 7.60 percent, and 8.75 percent at the top, with wider brackets for married filers than for single filers.3Vermont Department of Taxes. 2026 VT Tax Tables Most employers run the math through payroll software or the state’s withholding tables rather than by hand.
Vermont treats withheld tax as money held in trust for the state. If an employer fails to withhold the right amount or keeps the funds instead of remitting them, the responsible individual, not just the business entity, is personally liable for the full tax.4Vermont General Assembly. Vermont Statutes Title 32, Chapter 151, 5844 – Liability; Penalty; Trust for the State Late or underpaid withholding carries a 5 percent penalty per month of the unpaid balance.5Vermont Department of Taxes. Interest and Penalties
Unemployment Insurance
Unemployment insurance (UI) is funded entirely by employers; nothing comes out of employee paychecks. A business becomes liable once it pays at least $1,500 in gross wages during any calendar quarter, or employs at least one person for part of a day in each of 20 different weeks during the current or preceding calendar year.6Vermont Department of Labor. Employer Responsibility for Unemployment Coverage
For 2026 the taxable wage base is $15,400 per employee. Once a worker’s year-to-date wages cross that figure, no further UI tax is owed on them for the rest of the year.7Vermont Department of Labor. Quarterly Reporting and Taxable Wage Information New employers start at 1.0 percent. After a business builds enough history, its rate adjusts based on former employees’ claims. Vermont uses five rate schedules with 21 rate classes each, and experienced rates can run from 0.4 percent to 8.4 percent depending on which schedule is in effect.8Vermont Department of Labor. Unemployment Tax Rates
UI reports are quarterly, due by the last day of the month after the quarter closes: April 30, July 31, October 31, and January 31. Missing a deadline adds interest of 1.5 percent per month on the unpaid balance. Misclassifying a worker as an independent contractor can draw fines of up to $5,000 per misclassified worker.9Vermont Department of Labor. Employer Information Manual – A Guide to Vermont’s Unemployment Insurance Program
Child Care Contribution
Since July 1, 2024, Vermont has collected a 0.44 percent payroll tax on all wages earned in the state to fund early childhood education. The employer owes the full 0.44 percent and may choose to deduct up to a quarter of that (0.11 percent) from employee paychecks, keeping the remaining 0.33 percent or more as its own cost.10Department of Taxes. Child Care Contribution An employer can also absorb the whole contribution and withhold nothing. Self-employed individuals owe a separate 0.11 percent on net earnings.
Every worker earning wages in Vermont is subject to the contribution, regardless of whether they have children. The same 5 percent monthly penalty that applies to income tax withholding applies here too. The most common slip-up is forgetting to tell employees whether and how much will be deducted; that notification should happen when the policy is set and whenever it changes.
Health Care Fund Contribution Assessment
Vermont requires employers to report and pay a quarterly Health Care Fund Contribution Assessment (HCFCA) based on the number of uncovered employee hours worked. An employee is “uncovered” if they are not enrolled in a health plan the employer helps pay for and the employer does not have a completed Form HC-2 on file for them. Workers in a probationary period count as uncovered unless they get coverage before the quarter ends. Workers under 18 at any point during the quarter are excluded from the calculation.11Vermont Department of Taxes. Health Care Fund Contribution Assessment
The assessment is calculated on Form HC-1 and filed with the quarterly withholding reconciliation on Form WHT-436. Even employers covering all staff still need to file each quarter to confirm no assessment is due.
Workers’ Compensation Insurance
Workers’ compensation is not a tax, but it is a mandatory payroll-related expense for nearly every Vermont employer. A business that hires one or more employees, full- or part-time, must carry coverage or get Department of Labor approval to self-insure. The requirement applies to employees hired outside Vermont if they perform work in the state.12Vermont Department of Labor. A Guide for Vermont Business Owners – Workers’ Compensation
Narrow exceptions exist for sole proprietors and partners (not covered automatically, but can opt in), corporate officers who apply for exclusion, casual employees whose work is unrelated to the employer’s regular business, and small farm operations with payroll under $2,000 per year. Premiums vary by industry classification and claims history. Operating without coverage can bring fines and personal liability for an injured worker’s medical bills and lost wages.
Vermont Saves Retirement Program
Vermont Saves requires certain employers to either offer their own qualified retirement plan or enroll employees in the state program. The mandate applies to employers that meet all three of these conditions: two or more employees, in business for at least two years, and no existing qualified plan such as a 401(k) or SIMPLE IRA.13VermontSaves. Program Details Employers that already sponsor a qualified plan can certify their exemption online using their Access Code and EIN.14VermontSaves. Employers
New businesses have a June 30, 2026 registration deadline. Businesses notified before January 1, 2026 should already be registered or exempt. Once enrolled, the employer processes payroll deductions. The default rate is 5 percent of gross pay, deducted after taxes, with automatic enrollment after a 30-day opt-out window.15VermontSaves. Program Details Employees can change their rate or opt out at any time. No employer match is required.
Registering Before Your First Payroll
Before running payroll, you need a federal EIN from the IRS and a Vermont business tax account. The state account is established by filing Form BR-400 with the Department of Taxes.16Vermont Department of Taxes. BR-400 The form asks for the legal structure, the tax types you expect to owe (withholding, Child Care Contribution, Health Care Fund Contribution), and identifying information for owners and officers, including Social Security numbers and home addresses.1Vermont Department of Taxes. Form BR-400 Instructions
Unemployment insurance registration runs separately through the Department of Labor. You’ll need your NAICS code, since industry classification affects the initial UI rate assigned to the account.6Vermont Department of Labor. Employer Responsibility for Unemployment Coverage Getting both registrations done before the first paycheck avoids retroactive filings and the penalties that follow them.
Filing Frequency, Payments, and Records
Vermont income tax withholding and the Child Care Contribution are filed through myVTax. How often you file depends on how much you withhold annually. Employers withholding $2,500 or less per year file quarterly. Those withholding between $2,501 and $9,999 file monthly. Employers withholding $10,000 or more follow a semi-weekly deposit schedule. UI reports run on their own quarterly track through the Department of Labor’s portal.
Payments made by ACH debit through the Department of Taxes process within one business day of submission.17Vermont Department of Taxes. File and Pay The processing date, not the submission date, determines whether a payment is on time, so saving a digital confirmation from each filing is the easiest way to settle any dispute later.
Vermont requires employers to keep withholding records, including W-4VT forms and W-2 statements, for at least four years after the tax due date for the period they cover, or four years after the tax is paid, whichever is later.18Vermont Secretary of State. Payroll – Managing (GRS-1009.1103) UI records should be kept for the same period. Electronic storage is acceptable, but the records must be accessible and legible if either department requests them in an audit.