Vermont State Taxes: Everything You Need to Know

FT Contributor  | 

Vermont has a long history of highway, inheritance, and gas taxes, dating all the way back to 1890. In 1931, the state imposed its first income tax to increase revenue for the local government. Since the first enactment of the state income tax system, a lot has changed.

The Vermont Department of Taxes developed five different brackets for single filers and joint filers. It’s considered a progressive tax system, meaning the taxes owed increase as the taxable income earned increases. In 2017, 370,721 tax returns were filed in Vermont, equaling $1,853,111,333 in tax revenue.

In addition to an individual income tax, Vermont also imposes sales, inheritance, and property taxes. Review this guide to learn more about Vermont tax laws and regulations.

Vermont Personal Income Taxes

Income tax is a tax imposed on the income you earned throughout the year. You’re responsible for paying federal income taxes. If you earned income in Vermont as a resident, part-year resident, or nonresident and you must file a federal tax return to calculate your tax refund or liability, you must also file a state tax return. Vermont has the seventh-highest income tax rate in the country.

The state implemented four tax brackets, which include a base rate and tax rate. The taxes you owe vary depending on the way you file your taxes and the income you earned throughout the year.

As a single filer, you’ll pay the following:

Taxable Income Earned Tax Rate
$0 to $39,600 3.35%
$39,601 to $75,000 $1,327 plus 6.6% on the amount over $39,600
$75,001 to $96,000 $3,663 plus 6.6% on the amount over $75,000
$96,001 to $200,200 $5,049 plus 7.6% on the amount over $96,000
Over $200,200 $12,968 plus 8.75% on the amount over $200,200

If you’re married and filing jointly, you’ll use the following tax rates when you file your tax return:

Taxable Income Earned Tax Rate
$0 to $66,150 3.35%
$66,151 to $75,000 $2,216 plus 6.6% on the amount over $66,150
$75,001 to $159,950 $2,800 plus 6.6% on the amount over $75,000
$159,951 to $243,750 $8,407 plus 7.6% on the amount over $159,950
Over $243,750 $14,776 plus 8.75% on the amount over $243,750

If you’re married but filing separately from your spouse, the following tax brackets apply:

Taxable Income Earned Tax Rate
$0 to $33,075 3.35%
$33,076 to $75,000 $1,108 plus 6.6% on the amount over $33,075
$75,001 to $79,975 $3,875 plus 6.6% on the amount over $75,000
$79,976 to $121,875 $4,203 plus 7.6% on the amount over $79,975
Over $121,875 $7,388 plus 8.75%

Lastly, if you’re filing as the head of household, you would use the following tax rates:

Taxable Income Earned Tax Rate
$0 to $53,100 3.35%
$53,101 to $75,000 $1,779 plus 6.6% on the amount over $53,100
$75,001 to $137,050 $3,224 plus 6.6% on the amount over $75,000
$137,051 to $221,950 $7,320 plus 7.6% on the amount over $137,050
Over $221,950 $13,772 plus 8.75% on the amount over $221,950

Vermont Sales Tax

When you purchase a taxable good or service in Vermont, you must pay the state’s general sales tax rate, which is 6%. Local jurisdictions have the right to impose their own additional 1% sales taxes on general purchases, called a “local option sales tax.” Depending on where you are in the state when you make a purchase, you may be required to pay a 7% sales tax rate.

If you purchase an item for use in Vermont and the seller doesn’t charge sales tax, you owe a 6% use tax. This is common when you make taxable purchases online, by mail, by phone, or out of state. The use tax works together with the sales tax to provide the state government with revenue.

Vermont Personal and Real Property Taxes

Your personal property is the tangible property you own that can easily be moved. Your real property is what you own that can’t be moved, such as land and the buildings attached to it. In Vermont, if you own real property, you must pay property taxes on it. Your property taxes include an education property tax and the rate varies, depending on whether your property is declared homestead or non-homestead.

To declare your property as your homestead, you must be a Vermont resident who owns and lives in your home as of April 1, 2019. You must complete and submit a Vermont Homestead Declaration and Property Tax Adjustment (Claim Form HS-122).

If you successfully declare your property as a homestead, you may also qualify for the Vermont Property Tax Credit, which can adjust your property taxes by up to $8,000. To qualify, you must:

  • Prove you were domiciled in Vermont for at least the entire past year.
  • Not be claimed as a dependent on someone else’s taxes.
  • Have declared the property as your homestead before April 1.
  • Have earned below the maximum household income limit of approximately $136,500.

To apply for the credit, you must complete and submit the Homestead Declaration and Property Tax Credit Claim (Form HS-122) and the Household Income Schedule (Schedule HI-144).

Vermont Inheritance and Estate Taxes

If a loved one passes away and leaves you with assets or property, you may owe an inheritance tax. If the property or assets are transferred to you after the passing of a loved one, you may owe an estate tax.

Vermont doesn’t collect inheritance tax but the state may impose an estate tax on the assets transferred to you. However, this is only if the deceased person owned property or assets in Vermont and one or both of the following is true:

  • The total of their federal gross estate and their federal adjusted taxable gifts over the past two years is over $2.75 million, or;
  • They’re required to submit a U.S. Estate (and Generation-Skipping Transfer) Tax Return (Form 706) to the federal government.

The Vermont estate tax is 16%. When the deceased owner’s property value is higher than $2.75 million, the excess value is taxed. However, property that’s been left to a spouse is exempt from the estate tax.

Other Vermont Taxes

Vermont Capital Gains Tax

Tax credits and exclusions help decrease your tax liability. Generally, capital gains are taxed the same as individual income. However, with the capital gains exclusion, Vermont allows a portion of your capital gains to be exempt from income tax. You can choose to use the Flat Exclusion, which is a flat rate of $5,000, or the Percentage Exclusion, which is 40% with a cap of $350,000.

Vermont Alcohol Tax

Vermont controls the sale of alcohol and it can only be sold through the Vermont Department of Liquor Control-approved stores. Alcohol sold in grocery and convenience stores is subject to the state’s 6% sales tax and local option tax, if applicable. Alcoholic beverages sold for immediate human consumption, such as at a bar, are subject to a 10% Vermont Alcoholic Beverage Tax.

Vermont Gas Tax

Retailers that sell natural gas, coal, electricity, heating oil, kerosene, propane, or diesel fuel in the state are subject to a fuel tax. Natural gas and coal are taxed at a rate of 0.75% while electricity is taxed at 0.5%. Other types of gas are taxed at two cents per gallon.

If you live in Vermont, it’s important to understand the sales, property, and income taxes you may be required to pay. By reviewing these tax rates and regulations, you can ensure you pay the correct taxes on time.


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