Does Vermont Tax Social Security Benefits?
Learn if your Social Security benefits are taxable in Vermont. Our guide explains the state's income-based exemption rules and how to determine your tax liability.
Vermont taxes Social Security benefits, but this tax only applies to residents with incomes exceeding specific state-determined levels. Many retirees discover that their benefits are not subject to state income tax because of these exemptions. The state has established income thresholds that shield a significant number of taxpayers from this liability. Vermont has also initiated a legislative plan to incrementally phase out the tax on Social Security benefits, with the goal of making them fully exempt for all taxpayers by 2032. Whether your benefits are taxed depends entirely on your income level and filing status.
Vermont’s Income Thresholds for Social Security Taxation
As part of a multi-year phase-out, Vermont provides a full or partial exemption for Social Security benefits based on a taxpayer’s federal Adjusted Gross Income (AGI). For the 2025 tax year, married couples filing a joint return can fully exempt their Social Security benefits if their AGI is $75,000 or less. For single filers and those who are married filing separately, the full exemption applies if their AGI is $60,000 or less.
A partial exemption is available for those with incomes slightly above these full exemption limits. Joint filers with an AGI between $75,001 and $84,999 and single filers with an AGI between $60,001 and $69,999 qualify for a partial exemption. Once AGI exceeds $85,000 for joint filers or $70,000 for other filing statuses, all federally taxable Social Security benefits become fully taxable in Vermont.
Your federal AGI includes all sources of income like wages, self-employment earnings, interest, dividends, and retirement account distributions. This figure is calculated on your federal tax return before you take either the standard or itemized deductions.
Calculating the Taxable Portion of Your Benefits
The calculation of taxable Social Security in Vermont begins with the amount of your benefits that are subject to federal income tax. The federal government taxes up to 85% of Social Security benefits depending on your “combined income,” which includes your AGI, nontaxable interest, and half of your Social Security benefits. This federally taxable amount is the starting point for the Vermont calculation. If your AGI is below Vermont’s thresholds, you can subtract the full amount of your federally taxable Social Security benefits on your state return.
For those who fall within the partial exemption phase-out range, the exemption is reduced as your income increases. Consider a married couple filing jointly with a federal AGI of $80,000 and federally taxable Social Security benefits of $20,000. Their AGI is $5,000 into the $10,000 phase-out range ($75,001 to $84,999), meaning their exemption is reduced by 50%. They can only exclude 50% of their federally taxable benefits, or $10,000, while the remaining $10,000 is subject to Vermont income tax.
This gradual phase-out ensures a smooth transition from a full exemption to full taxability. It prevents a sudden tax cliff for retirees whose income is just over the initial threshold. The specific computation for the partial exemption is detailed on the state’s tax forms.
Reporting on Your Vermont Tax Return
After determining the taxable portion of your Social Security benefits, you must report this information correctly on your Vermont income tax return. The primary form for state income taxes is Form IN-111, the Vermont Income Tax Return. This form serves as the main document for calculating your total state tax liability.
To properly account for the Social Security exemption, taxpayers must use Schedule IN-113, the Vermont Social Security Adjustment. This schedule guides you through the calculation of the exempt portion of your benefits. The result from Schedule IN-113 is then transferred to the subtractions from income section on Schedule IN-112, Vermont Tax Adjustments and Credits.
The final figure from Schedule IN-112 is then entered on the appropriate line of Form IN-111. This process ensures that you correctly reduce your Vermont taxable income by the amount of any Social Security benefits the state exempts.