Does Vermont Tax Retirement Income?

Partly. Vermont taxes some Social Security benefits, subject to an exclusion or age rule.

Federally taxable Social Security is fully excluded when federal AGI is $55,000 or less for single, separate, head-of-household, and surviving-spouse filers, or $70,000 or less for joint filers. The exclusion phases out over the next $10,000 of AGI and is gone at $65,000 single or $80,000 joint. Filers above those lines pay Vermont tax on the same amount that is federally taxable.

The Vermont answer is separate from the federal one. Depending on combined income, up to 85% of Social Security benefits can be taxable on the federal return regardless of what Vermont does, so the state rule changes the state line only. Our guide to states that do not tax Social Security shows where Vermont sits among the states that still tax benefits.

Partly. Vermont taxes some pension income, subject to an exclusion or age rule.

Private pensions are fully taxable. The first $10,000 of Civil Service Retirement System income, or of a contributory federal, state, or local government pension whose earnings were not covered by Social Security, can be excluded under the same $55,000 single and $70,000 joint AGI thresholds. A taxpayer eligible for the Social Security, CSRS, and other-government exclusions must pick only one of the three.

The Social Security exclusion is the only relief most retirees can reach, and it turns on federal AGI: full at $55,000 single or $70,000 joint, partial in the next $10,000, zero at $65,000 or $80,000. The $10,000 CSRS and other-government pension exclusions use the same thresholds and cannot be stacked with the Social Security exclusion. Nothing in the statute shelters private pensions or retirement-account withdrawals.

Public and private pensions, annuities, and retirement-plan distributions do not always get the same treatment. The pension comparison lists which states exempt pensions broadly, partly, or only for certain plans.

Yes. Vermont generally taxes traditional 401(k) and IRA withdrawals.

Traditional 401(k) and IRA withdrawals are taxed in full at Vermont rates. There is no age-based subtraction, and a large withdrawal can push federal AGI past the Social Security threshold in the same year.

Two timing points matter in Vermont. A Roth conversion is taxable in the year it is done, and Vermont starts from federal adjusted gross income, so a large conversion can land in a year when the state exclusion does not cover it. Qualified Roth withdrawals later are generally not taxable at either level. Required minimum distributions follow the same Vermont rules as any other traditional-account withdrawal.

Every state page on this site runs the same retiree profile so the states can be compared: $30,000 of Social Security, $40,000 withdrawn from a traditional 401(k), and a $20,000 private pension, $90,000 in total.

A single 68-year-old with $30,000 of Social Security, $40,000 from a 401(k), and a $20,000 private pension has federal AGI of about $85,500. That is above the $65,000 line where the single-filer Social Security exclusion ends, so Vermont taxes all $85,500, including the $25,500 of taxable Social Security. After the Vermont standard deduction and personal exemption, Vermont tax is roughly $3,100.

Vermont starts from federal AGI of $85,500. The Social Security exclusion is unavailable because AGI exceeds $65,000, and the $10,000 government-pension exclusion does not apply to a private pension, so no retirement subtraction is available. Subtracting the Vermont standard deduction and personal exemption leaves taxable income near $73,000; on the 2025 single schedule that is $1,655 on the first $49,400 plus 6.6% of the remainder, roughly $3,100 of Vermont tax. Add a $150,000 traditional IRA withdrawal and taxable income rises to about $223,000, where the 7.6% bracket applies above $119,700, producing roughly $14,100 of Vermont tax, about $11,000 more than the base year. Had the same person kept federal AGI at $55,000 or less, the entire $25,500 of taxable Social Security would have come off the Vermont return.

The same $90,000 profile looks different a state line away. The rows below come from the reviewed 51-state table; each state name links to its own guide.

• New Hampshire: has no individual income tax at all.
• New York: treats Social Security as exempt, pensions as partially taxed, and 401(k) and IRA withdrawals as partially taxed, with a top rate of 10.90% and $20,000 exclusion at 59.5+; government pensions exempt.
• Massachusetts: treats Social Security as exempt, pensions as partially taxed, and 401(k) and IRA withdrawals as taxed, with a top rate of 9.00% and many government pensions are exempt.

Retirees see the words Social Security exemption and assume it applies to them. In Vermont it is gone at $65,000 of federal AGI for a single filer, which a modest pension plus required minimum distributions can exceed, and it is calculated on federal AGI, so a one-time capital gain or IRA withdrawal can wipe it out for that year.

Military retirement: All federally taxable U.S. military retirement and survivor benefit income is excluded when federal AGI is $125,000 or less for any filing status, with a proportional phase-out between $125,000 and $175,000. Since 2025 this exclusion no longer has a $10,000 cap and can be claimed together with the Social Security or CSRS exclusion. See the military retirement tax map for every state's treatment.

Estate and inheritance tax: Vermont has an estate tax on estates above a $5,000,000 exclusion, with a flat 16% rate on the amount over the exclusion. There is no inheritance tax.

Selling a home or investments in Vermont: retirement-income rules do not cover capital gains. See Vermont capital gains tax before selling appreciated property or a brokerage position in the year you move or retire.

• Confirm the exclusion you are claiming. The Social Security exclusion is the only relief most retirees can reach, and it turns on federal AGI: full at $55,000 single or $70,000 joint, partial in the next $10,000, zero at $65,000 or $80,000. The $10,000 CSRS and other-government pension exclusions use the same thresholds and cannot be stacked with the Social Security exclusion. Nothing in the statute shelters private pensions or retirement-account withdrawals.
• Part-year residents. If you moved into or out of Vermont during the year, retirement income is generally allocated to the period of residency, and the former state may still tax distributions received before the move. Document the move date, the new domicile, and where each distribution was received.
• Withholding and estimates. Pension and IRA custodians often withhold federal tax but not Vermont tax. If Vermont taxes any part of your retirement income, check whether quarterly estimated payments are needed to avoid an underpayment penalty.
• Federal side. The federal return has its own rules: up to 85% of Social Security can be taxable, the temporary $6,000 federal senior deduction is available for 2025 through 2028 subject to income limits, and Roth conversions are taxed in the conversion year. State exemptions do not change any of that.
• Large one-time distributions. If you are within $10,000 of the threshold, control federal AGI: qualified charitable distributions from an IRA, timing of capital gains, and Roth conversions done before Social Security starts all keep the exclusion alive. For a military retiree, the $125,000 AGI test is separate and much more generous.

Comparing states before a move? Use the retirement taxes by state table and the moving states tax guide, and read retirement tax planning for how distributions, conversions, and a move are sequenced together.