Vermont taxes Social Security, but exempts it in full for retirees whose federal adjusted gross income (AGI) stays at or below $55,000 for single filers or $65,000 for married couples filing jointly. Below those lines your benefits are untaxed by Vermont; above them the exemption phases out, disappearing by $65,000 single or $80,000 joint. Vermont also gives certain military and Civil Service retirees a $10,000 exclusion, while taxing IRA and 401(k) withdrawals in full.

This guide walks through the Social Security thresholds and the phase-out, the $10,000 CSRS and military exclusion, and how retirement-account income is treated.

In This Guide

Vermont Retirement Income Tax at a Glance

Vermont's retirement breaks are income-tested and relatively modest. A full Social Security exemption applies at or below an AGI line, a small exclusion covers certain government and military pensions, and ordinary retirement-account income is taxable. The table below summarizes each type.

Income type Treatment Income test
Social Security Fully exempt at or below the threshold; phases out above $55,000 single / $65,000 joint AGI (gone by $65,000 single / $80,000 joint)
CSRS and military retirement Up to $10,000 exclusion Income-tested to comparable thresholds
Other pensions and annuities Taxable unless covered by the exclusion above n/a
IRA and 401(k) distributions Taxable n/a
Senior-specific exclusion The income-tested rules above serve this role See above

Vermont's income tax is graduated, topping out at 8.75 percent. Retirement income that does not qualify for an exemption is taxed under that schedule.

Vermont Retirement Income Tax: How It Works

Vermont starts by treating Social Security and most retirement income as taxable, then layers on an income-tested exemption for Social Security and a small exclusion for certain pensions. The center of the system is the Social Security threshold: a full exemption applies for taxpayers with federal AGI at or below $55,000 (single) or $65,000 (married filing jointly), phasing out across the next band of income and disappearing by $65,000 for single filers and $80,000 for joint filers.

The phase-out is gradual rather than a cliff, so income modestly above the line reduces the exemption instead of wiping it out all at once. The Vermont Department of Taxes publishes the exemption rules and the current-year figures if you want to confirm your own treatment.

Social Security

Vermont fully exempts Social Security benefits for taxpayers with federal AGI at or below $55,000 (single) or $65,000 (married filing jointly). If you are at or under those lines, none of your Social Security is taxed by Vermont.

Above the thresholds, the exemption phases out smoothly. A single filer between $55,000 and $65,000 keeps part of the exemption; by $65,000 it is gone entirely, and the same happens for joint filers by $80,000. Retirees near the line should run their actual numbers rather than assuming.

The $10,000 CSRS and Military Exclusion

Vermont offers a separate exclusion of up to $10,000 for Civil Service Retirement System (CSRS) and military retirement income, income-tested to comparable thresholds. This is a targeted break for certain federal civil-service retirees and military retirees, not a general pension exemption.

One limit matters: a taxpayer can generally claim only one of these retirement exemptions, rather than stacking the Social Security exemption and the $10,000 exclusion. The exclusion is modest, but for a qualifying military or CSRS retiree under the income threshold it is a real reduction in Vermont taxable income.

IRA, 401(k), and Other Retirement Accounts

Vermont taxes IRA and 401(k) distributions in full. There is no separate exemption for traditional retirement-account withdrawals, so this income is taxed under Vermont's regular schedule regardless of age.

That makes Vermont relatively heavy on retirees who live mostly on IRA and 401(k) money, since neither the Social Security exemption nor the narrow CSRS-and-military exclusion reaches that income. It also means a large account withdrawal does double duty against you: it is taxable itself, and by raising your AGI it can push you past the Social Security threshold and shrink that exemption too.

Picture a single Vermont retiree with $22,000 in Social Security and AGI comfortably under the threshold, so the benefits are fully exempt. In one year they take a $40,000 IRA withdrawal to cover a care expense. That $40,000 is taxable on its own, and it also lifts the retiree's AGI above the $55,000 single threshold, so part of the Social Security exemption phases out and some benefits become taxable too. The single withdrawal costs the retiree twice. Spreading the same withdrawal across two or more years, where the situation allows, can keep AGI under the line and preserve the Social Security break. The figures here are hypothetical and shown only to illustrate the mechanic; they are not a real case and not a prediction of your own outcome.

For how these accounts fit into paying for care, retirement accounts for care covers the withdrawal tradeoffs.

Confirm the Current Thresholds

Vermont's Social Security exemption runs off exact income lines: a full exemption at or below $55,000 for single filers and $65,000 for married couples, phasing out across the next band of income and disappearing by $65,000 (single) or $80,000 (joint). One wrinkle affects couples: the Vermont statute sets the joint full-exemption ceiling as high as $70,000, slightly above the $65,000 the Department of Taxes retiree summary uses, so a couple with AGI between $65,000 and $70,000 should confirm their exact treatment with the current Vermont guidance.

This is general information rather than personalized tax advice. Because Vermont's exemptions are income-tested and the CSRS-and-military rule interacts with the Social Security exemption, a tax professional or the current Vermont Department of Taxes guidance is the right place to confirm your specific situation. If retirement income is part of how you will fund care, building a senior care funding plan is a useful next step.

Near the Vermont income threshold and unsure where you land? Chat with Brevy's care navigator to think it through.

Frequently Asked Questions

Does Vermont tax Social Security?

It depends on income. Vermont fully exempts Social Security for taxpayers with federal AGI at or below $55,000 (single) or $65,000 (married filing jointly), and the exemption phases out above those lines, disappearing by $65,000 single or $80,000 joint.

Does Vermont tax IRA and 401(k) distributions?

Yes. Vermont taxes traditional IRA and 401(k) distributions in full under its regular schedule. There is no separate exemption for retirement-account income.

Is military retirement income taxed in Vermont?

Vermont excludes up to $10,000 of military and CSRS retirement income, income-tested to comparable thresholds. Amounts above the exclusion, or income over the thresholds, are taxable.

At what income does the Social Security exemption disappear?

For single filers, the Vermont exemption phases out between $55,000 and $65,000 of federal AGI and is fully gone at $65,000. For married couples filing jointly, it phases out up to $80,000.

Can I claim both the Social Security exemption and the $10,000 exclusion?

Generally a taxpayer claims one of these retirement exemptions rather than stacking them freely. Check the current Vermont rules to see which applies best to your situation.

Next Steps

If you are retired in Vermont, start with the Social Security threshold and confirm where your income lands before doing anything else.

  • Confirm how the thresholds apply to you ($55,000 single / $65,000 joint full-exemption lines) with the Vermont Department of Taxes.
  • Compare your federal AGI to those lines to see whether your Social Security is fully exempt, in phase-out, or fully taxable.
  • Check the $10,000 exclusion if you have CSRS or military retirement income.
  • Plan for tax on IRA and 401(k) withdrawals, which Vermont taxes in full and which can also lift your AGI past the threshold.

If you are mapping how to pay for care, how to pay for senior care lays out the options.

Learn More

FinancialVermont Senior Property Tax ReliefHow Vermont homeowners reduce their property-tax bill with the Property Tax Credit on Form HS-122, income up to $115,400, maximum $8,000, available at any age. FinancialVermont Estate TaxDoes Vermont have an estate tax? Yes, with a flat $5 million exemption and a flat 16% rate on the value above it. No inheritance tax. Here's how it works. FinancialHow Each State Taxes Retirement IncomeRetirement income tax varies enormously by state. Learn how states treat Social Security, pensions, and IRA or 401(k) money, and find your state's rules. FinancialHow to Pay for Senior CareHow to pay for senior care: what it costs nationally and how Medicaid, Medicare, VA benefits, and private pay each fit. Who qualifies, what's covered, in 2026. FinancialBuilding a Senior Care Funding PlanA step-by-step plan to pay for senior care: estimate the cost, inventory income and assets, find the payers you qualify for, sequence them, and get free help. FinancialRetirement Accounts for CareHow to use a retirement account to pay for senior care: the tax on IRA and 401(k) withdrawals, the early-penalty exceptions, RMDs at 73, and the tax-spike trap.

Find personalized help making sense of the Vermont retirement income tax at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.

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Brevy Care Team

Expert eldercare guidance from Brevy's team of healthcare professionals and researchers.