What Are the Vermont State Wealth Taxes?

Vermont does not have a direct, annual wealth tax on an individual’s total net worth, though the concept has been a subject of significant legislative debate. Instead of a broad wealth tax, the state’s tax structure affects high-net-worth individuals through several other mechanisms. These include an estate tax, a progressive income tax system that applies to investment gains, and a statewide property tax. Understanding these components is necessary to grasp how wealth is taxed in Vermont.

Proposed Wealth Tax Legislation in Vermont

Vermont lawmakers have actively considered proposals to tax the net worth of the state’s wealthiest residents. One prominent proposal sought to impose a tax on the unrealized capital gains of taxpayers with a net worth of $10 million or more. This approach targets the annual increase in the value of assets, such as stocks or real estate, even if those assets are not sold.

The mechanics of this proposed tax involved applying individual income tax treatment to 50 percent of the gain. The tax would be capped at 10 percent of the taxpayer’s net worth exceeding the $10 million threshold, and assets like most retirement accounts would be exempt.

Alongside the tax on unrealized gains, another bill proposed a 3% income tax surcharge. This surcharge would apply to individuals with a federal adjusted gross income (AGI) of more than $500,000.

While these specific bills have not become law, they indicate a clear policy direction and provide a framework for what a Vermont wealth tax might entail if enacted. The proposals define taxable assets broadly and consider residency status to apportion gains for part-year residents.

Vermont’s Estate Tax

Vermont imposes an estate tax, which is a tax on the transfer of a person’s assets to their heirs after death. This is distinct from an inheritance tax, which is paid by the recipient of the assets; Vermont does not have an inheritance tax. The tax applies to the total value of the decedent’s taxable estate that exceeds a specific exemption amount.

For deaths occurring in 2025, the Vermont estate tax exemption is $5 million. This means that if a person’s taxable estate is valued at $5 million or less, no Vermont estate tax is due. The tax is only calculated on the value of the estate that surpasses this $5 million figure.

Vermont applies a flat tax rate of 16% to the portion of the estate that exceeds the exemption. For example, if an estate is valued at $8 million, the first $5 million is exempt. The remaining $3 million is subject to the 16% tax, resulting in an estate tax liability of $480,000.

The tax applies to the estates of Vermont residents as well as non-residents who own real or tangible personal property in the state. For residents, the tax is based on their entire gross estate, excluding real or tangible property located outside Vermont. For non-residents, the calculation is based on the value of their Vermont-based property relative to their total estate. Vermont does not allow for “portability,” where a surviving spouse can use the deceased spouse’s unused exemption.

Income Tax on High Earners and Investments

Vermont’s personal income tax system is progressive, meaning the tax rate increases as income rises. For the 2025 tax year, the state’s income tax rates range from 3.35% to a top marginal rate of 8.75%. This highest rate applies to taxable income over $242,550 for single filers.

A primary aspect of income taxation for wealthy individuals is the treatment of capital gains. Unlike the federal system, which has separate, lower long-term capital gains rates, Vermont taxes most capital gains as ordinary income. This means profits from selling assets are added to other income and taxed at the standard progressive rates.

For assets held for more than three years, Vermont allows for an exclusion of up to 40% of the capital gain from taxation. This exclusion provides some relief for long-term investments. However, this tax benefit is capped and cannot exceed 40% of the taxpayer’s federal taxable income.

Statewide Education and Property Taxes

Vermont’s property tax system functions as a tax on real estate wealth. The system has two primary parts: a municipal property tax set by local towns and a statewide education property tax. This tax is applied to all property, which is categorized as either a “homestead” (a primary residence) or “non-homestead.”

The education tax rates are determined annually by the state legislature. For the 2025 fiscal year, a statewide non-homestead tax rate was set, while homestead rates are calculated based on a “property yield” and the per-pupil spending voted on in the local school district.

A feature of this system is the ability for eligible Vermont residents to adjust their education tax burden based on their income. Homeowners must file a Homestead Declaration to have their property taxed at the homestead rate and can also file a Property Tax Credit Claim. If the property tax amount exceeds a certain percentage of income, the state provides a credit to lower the tax bill. About two-thirds of Vermont homeowners receive an income-based property tax credit annually.

Required Tax Filings and Information

Estate Tax

An executor must compile a comprehensive inventory of the decedent’s assets to calculate the gross estate, including appraisals for real estate and financial accounts. The primary form for this process is Form E-1, the Vermont Estate Tax Return. When a federal return is not required, a pro forma Federal Form 706 must be completed and filed with the Vermont return.

Income Tax

Taxpayers must have their federal income tax return completed, as Vermont’s tax calculation begins with the federal Adjusted Gross Income (AGI). To report capital gains, taxpayers will need Form 1099-B from their brokerage and records of the original purchase price to accurately calculate the taxable gain. The main state tax form is Form IN-111, the Vermont Individual Income Tax Return.

Property Tax

To be taxed at the correct property tax rate and claim any available credits, homeowners must file Form HS-122, the Homestead Declaration and Property Tax Credit Claim, annually. The property’s School Property Account Number (SPAN) is required for the declaration. To apply for the property tax credit, filers must also complete Schedule HI-144, Household Income, which requires documentation for all household income for the prior calendar year.