08/01/2026
After a bit of research it’s just the correct course of action. I would introduce or support this type of Legislation.
It may be a small step in making Vermont a little bit more affordable for our aging population. The money would generally be spent locally as well and have a positive impact on local markets.
H. ___
2027 Session
Introduced by Representative Alford Clayton of Bennington-4
AN ACT RELATING TO THE FULL EXEMPTION OF SOCIAL SECURITY BENEFITS FROM VERMONT PERSONAL INCOME TAX
It is hereby enacted by the General Assembly of the State of Vermont:
Sec. 1. FINDINGS AND PURPOSE
The General Assembly finds that:
(1) As of 2026, 42 states and the District of Columbia fully exempt Social Security benefits from state income taxation. Only eight states, including Vermont, continue to tax any portion of these benefits.
(2) Vermont currently provides a partial, income-based exemption for federally taxable Social Security benefits under 32 V.S.A. § 5830e. Single filers with federal adjusted gross income (AGI) of $55,000 or less and joint filers with AGI of $70,000 or less receive a full exemption; the exemption phases out over the next $10,000 of AGI and is unavailable above those thresholds.
(3) In tax year 2024, Vermont collected approximately $61.5 million in personal income tax revenue attributable to Social Security benefits (approximately $59.7 million from resident returns). Roughly half of the tax returns reporting Social Security benefits paid no state tax on those benefits due to the existing exemption; among those who did pay, the average tax was approximately $1,327 per return.
(4) In 2023, approximately 162,000 Vermont residents received a total of $3.4 billion in Social Security benefits. These payments supported nearly 20,000 jobs, $1.1 billion in wages and salaries, $3.6 billion in total economic output, and hundreds of millions of dollars in combined federal, state, and local tax revenues within the State.
(5) Vermont has an aging population. Fully exempting Social Security benefits would increase disposable income for retirees and disabled Vermonters, strengthen local economic activity through increased spending, improve the State’s competitiveness relative to the 42 states that already provide a full exemption, and help retain residents who might otherwise relocate to more tax-friendly states for retirement.
(6) The purpose of this act is to fully exempt all federally taxable Social Security benefits from Vermont personal income tax, aligning Vermont with the majority of states, providing meaningful tax relief to older and disabled Vermonters, and supporting the State’s aging communities and local economies.
Sec. 2. 32 V.S.A. § 5830e is amended to read:
§ 5830e. Retirement income; Social Security income
(a) Social Security income. The portion of All federally taxable Social Security benefits excluded from taxable income under subdivision 5811(21)(B)(iv) of this chapter shall be as follows: received under the federal Social Security Act shall be excluded from taxable income under subdivision 5811(21)(B)(iv) of this chapter, regardless of the taxpayer’s federal adjusted gross income or filing status.
(1) For taxpayers whose filing status is single, married filing separately, head of household, or surviving spouse:
(A) If the federal adjusted gross income of the taxpayer is less than or equal to $55,000.00, all federally taxable benefits received under the federal Social Security Act shall be excluded.
(B) If the federal adjusted gross income of the taxpayer is greater than $55,000.00 but less than $65,000.00, the percentage of federally taxable benefits received under the Social Security Act to be excluded shall be proportional to the amount of the taxpayer’s federal adjusted gross income over $55,000.00, determined by:
(i) subtracting the federal adjusted gross income of the taxpayer from $65,000.00;
(ii) dividing the value under subdivision (i) of this subdivision (B) by $10,000.00; and
(iii) multiplying the value under subdivision (ii) of this subdivision (B) by the federally taxable benefits received under the Social Security Act.
(C) If the federal adjusted gross income of the taxpayer is equal to or greater than $65,000.00, no amount of the federally taxable benefits received under the Social Security Act shall be excluded under this section.
(2) For taxpayers whose filing status is married filing jointly:
(A) If the federal adjusted gross income of the taxpayer is less than or equal to $70,000.00, all federally taxable benefits received under the Social Security Act shall be excluded.
(B) If the federal adjusted gross income of the taxpayer is greater than $70,000.00 but less than $80,000.00, the percentage of federally taxable benefits received under the Social Security Act to be excluded shall be proportional to the amount of the taxpayer’s federal adjusted gross income over $70,000.00, determined by:
(i) subtracting the federal adjusted gross income of the taxpayer from $80,000.00;
(ii) dividing the value under subdivision (i) of this subdivision (B) by $10,000.00; and
(iii) multiplying the value under subdivision (ii) of this subdivision (B) by the federally taxable benefits received under the Social Security Act.
(C) If the federal adjusted gross income of the taxpayer is equal to or greater than $80,000.00, no amount of the federally taxable benefits received under the Social Security Act shall be excluded under this section.
(b)–(e) [Existing subsections concerning Civil Service Retirement System income, military retirement income, and other retirement income remain unchanged and continue in effect.]
Sec. 3. EFFECTIVE DATE
This act shall take effect on January 1, 2028, and shall apply to taxable years beginning on and after January 1, 2028.