Are Taxes High in Vermont? A Look at the State’s Tax Burden

Are taxes high in Vermont? This common question arises due to the state’s tax structure. Determining whether taxes are “high” depends on factors like individual income, spending habits, and property ownership. This article examines Vermont’s personal income, property, and sales taxes to help individuals understand their potential tax obligations.

Vermont Personal Income Tax

Vermont operates a progressive personal income tax system, where higher earners pay a larger percentage of their income in taxes. For the 2025 tax year, rates range from 3.35% to 8.75%. This system includes several tax brackets, with the top rate applying to income exceeding certain thresholds.

Individuals can reduce their taxable income through deductions and credits. For 2025, the standard deduction is $15,750 for single filers and $31,500 for married filing jointly. Vermont also offers credits such as the Earned Income Tax Credit (EITC), which is 36% of the federal credit, and a Child and Dependent Care Credit, calculated as 72% of the federal credit. Additional credits are available for charitable contributions, higher education investments, and income tax paid to another state.

Vermont taxes capital gains as ordinary income, applying the same progressive rates and brackets used for regular income. Some long-term capital gains may qualify for an exclusion, potentially reducing the taxable amount. Certain types of income, such as active-duty military pay earned outside the state and Social Security benefits for those below specific income thresholds, may be exempt or partially exempt from Vermont income tax.

Vermont Property Tax

Property taxation in Vermont involves a two-component system: a statewide education property tax and a municipal property tax. The education tax is the primary source of funding for public schools and is levied across all properties. Municipal property taxes, set by individual towns and cities, fund local services such as police, fire, and road maintenance.

Properties are categorized as either homestead or non-homestead, with different tax rates. Homeowners must file an annual Homestead Declaration by April 15th to certify their primary residence and qualify for homestead rates. This declaration is important for accessing tax relief programs, including income sensitivity adjustments, which can reduce a homeowner’s property tax bill based on their income.

Vermont’s average effective property tax rate has been around 1.56% to 1.86%. The actual tax bill for a property owner is influenced by the property’s assessed value, the local spending decisions of the municipality, and the state’s education funding formula. Property tax collections per capita in Vermont are also among the highest in the country.

Vermont Sales Tax and Other Key Taxes

Vermont imposes a statewide sales tax of 6% on most retail sales and certain services. Some municipalities have an additional 1% local option sales tax, bringing the combined rate to 7% in those areas. This local option tax contributes to local revenue streams for participating towns.

Items exempt from Vermont sales tax include most groceries for off-site consumption, prescription drugs, and many articles of clothing and footwear. However, prepared meals and soft drinks are typically subject to the sales tax.

Vermont also levies a Meals and Rooms Tax at a state rate of 9% on prepared meals and lodging rentals for stays of 29 nights or shorter. Similar to the sales tax, some municipalities may impose an additional 1% local option Meals and Rooms Tax. Other notable taxes include excise taxes on gasoline (32.61 cents per gallon) and cigarettes ($3.08 per pack). An estate tax of 16% is imposed on estates valued over $5 million.

Overall Tax Burden and State Rankings

Vermont consistently ranks among states with a high overall tax burden. It has the third-highest total tax burden nationally, at 10.73% of personal income. On a competitiveness index, Vermont’s tax system was ranked 43rd overall for 2025, indicating a less competitive tax structure compared to many other states.

A significant contributor to this ranking is the state’s property tax burden, identified as the highest in the country, representing approximately 5% of residents’ income. While these rankings offer a general overview, an individual’s actual tax burden can vary considerably. Factors such as income level, spending patterns, homeownership status, and utilization of tax credits and deductions directly influence the amount of tax an individual pays. Therefore, the perception of “high” taxes in Vermont is subjective and depends heavily on personal financial circumstances and priorities.