From the lush, forested mountainscapes to the beautiful granite quarries, the breathtaking scenery of Vermont makes people eager to plant their roots and stay awhile — maybe that’s why the Green Mountain State has some of the highest property taxes in the country. And what about that famous maple syrup and cheddar cheese? How much additional sales tax are you paying for VT’s delectable goods? Use our Vermont state income tax calculator to see what your annual take-home pay would be as a resident in this New England district and how that compares to your taxed cost of living.

When it comes to analyzing a state’s tax system, there are three major categories to take into account: income tax, sales tax, and property tax. Let’s take a quick look at the tax rates in Vermont before exploring each category more deeply.

The federal government gives each state the power to adopt its own tax system in addition to the tax code enforced by the Internal Revenue Service (IRS).

Some states adopt a flat tax rate, but the income tax in Vermont is progressive, meaning the more you earn, the higher the rate you’ll pay. Compared to other states in the U.S., the Green Mountain State ranks 8th highest with a top marginal tax rate of 8.75%. The state also collects revenue through Vermont sales tax (6.0%) which is imposed on the transaction of certain goods and services, but many cities in VT also charge an additional 1% sales tax. Property tax rates in Vermont vary widely depending on location and school district, but the top rate of 2.2532% is one of the highest in the United States.

Unfortunately, taxation doesn’t stop with these categories. Vermonters are also responsible for a capital gains tax, estate tax, and excise taxes. To offset some of this financial burden, the state offers its taxpayers credits, exemptions and deductions. Use our Vermont income tax calculator to estimate how much you can expect to pay this year, then read on for a detailed breakdown of the VT tax system.

There are four tax brackets in Vermont: 3.35%, 6.6%, 7.6%, and 8.75%. These recently reduced rates went into effect in 2018, meaning Vermont taxpayers are able to save more money on their annual tax bill. The tax rates apply to your taxable income, not your total income. Also known as your adjusted gross income (AGI), your taxable income takes into consideration your deductions, exemptions, and adjustments, so your taxable portion is significantly lower than your annual earnings.

To calculate your Vermont income tax, you’ll need to start with your federal taxable income, then consider:

• Additional income taxable in the state of Vermont
• Income and interest earned from in-state and out-of-state debt obligations
• State and city income taxes
• Capital gains exclusions

Your final figure will show you which Vermont tax bracket you fall into. Your tax rate is also dependent on your filing status, which there are seven of in the Green Mountain State:

• Single
• Married filing jointly
• Married filing separately
• Civil union partner filing jointly
• Civil union partner filing separately
• Head of household
• Qualifying widow(er) with dependent children

Your filing status must be the same as your federal filing status, except for civil unions or situations in which one spouse has a qualifying connection to Vermont and subject to the state’s tax jurisdiction. The two tax tables below apply to the most common filing statuses in Vermont:

In marginal tax systems, the tax rate applies to each portion of income with a given bracket. So, for single taxpayers:

• 3.35% on the first $38,700 of taxable income
• 6.60% on taxable income between $38,701 and $93,700
• 7.60% on taxable income between $93,001 and $195,450
• 8.75% on taxable income between over $195,451

Keep in mind that your state’s taxable income will likely be different than your federal taxable income, so calculate Vermont tax accordingly.

Vermont tax brackets have an embedded “marriage penalty,'' which occurs when a state’s income brackets for married taxpayers filing jointly are less than double the bracket widths that apply to single filers. In some circumstances, married couples will face a higher effective tax rate by filing jointly than they would if they filed separately as individuals.

In a state with the eighth highest marginal tax rate, saying “I do” and filing a joint return could send you into the next bracket, causing your tax bill to soar sky-high. Tailor your filing strategy accordingly and consider consider speaking to a tax professional who can ensure you never pay a dollar more than you have to.

In most cases, personal income tax in Vermont is withheld from your employer’s paycheck based on the information you provide on your Form W-4. Form W-4, Employee’s Withholding Allowance Certificate, is required by all employees who earn at least $800 per year. The document is used to report information such as your exemptions, allowances, and tax status.

Payments subject to Vermont withholding include working wages as well as pensions and annuities. If you’re self-employed, you’ll be responsible for submitting your own taxes, typically on a quarterly basis.

Capital gains refer to the profits made from the sale of an asset; investments held and sold for under a year are considered short-term capital gains, whereas investments held for at least a year before they are sold are considered long-term capital gains. Short-term capital gains in Vermont are taxed as ordinary income, with the highest rate of 8.75% and the lowest rate of 3.35%.

However, investors who play the waiting game stand to benefit from a capital gains exclusion that allows them to deduct up to $5,000 of their federal net adjusted capital gains. If you hold onto your asset for at least three years, you may be eligible for capital gains exclusion equal to 40% of the net adjusted capital gain.

Income tax is just one way the state generates revenue to fund public programs, local governments, and school districts. The Vermont sales tax also makes significant contributions to the spending budget with an additional 6% charged to most transactions.

Cities in Vermont also have the option of adding their own local 1% sales tax, so consumers in the Green Mountain State may have to pay an additional total of 7% sales tax depending on where they’re shopping.

The good news is that not all purchases are subject to taxation. While accessories, equipment, supplies, and grooming and hygiene products are all considered taxable, there are a number of goods that are considered exempt from sales tax in Vermont such as:

• Clothing sales
• Food and beverages (so long as they’re consumed off-site)
• Over-the-counter drugs
• Medical equipment and supplies (including wheelchairs, walkers, orthotic devices, etc).

Vermont is one of the few states that doesn’t charge sales tax on apparel, but it does charge an extra 9% Meals and Rooms Tax, so keep that in mind the next time you order food or rent a room in this New England province.

In addition to the standard sales tax, you’ll also have to pay extra excise tax in Vermont when purchasing specific items. These are often referred to as “sin taxes” because the products they’re imposed on, such as alcohol and tobacco, are deemed harmful to consumers and to society at large.

Excise taxes work differently than sales taxes because they’re a flat per-unit rate versus a percentage of the price, and they’re assessed on businesses rather than taxpayers. However, businesses pass the tax onto customers at the point of sale. Even though you don’t pay these taxes directly, partaking in taxed items frequently can certainly add to your overall tax contribution to the state of Vermont.

Vermont Alcohol Tax

The beer tax in Vermont is $0.26 per gallon and the wine tax is $0.55 per gallon. Vermont is an alcoholic beverage control (ABC) state, so wine products over 16% ABV (alcohol by volume) are subject to mark-up. The sale of liquor and spirits are only permitted in the state’s alcohol stores, also known as ABC stores; because the state earns revenue off these sales, the general 6.00% tax does not apply and there is no need to impose an additional excise tax on liquor. That said, if you buy an alcoholic beverage at a bar or restaurant, you’ll have to pay an additional 10% on-premise sales tax.

Vermont Tobacco Tax

Smoking tobacco costs more than just your health in the Green Mountain State. Vermonters pay an additional $3.09 per pack of 20 cigarettes, which is ranked the sixth highest tobacco tax out of all the states in the country. To dissuade teenagers from smoking, the Vermont House Legislature passed a 92% excise tax on e-cigarettes in February 2019.

Vermont Fuel Tax

Fuel is a limited resource taxed by states and by the federal government. The fuel tax in Vermont costs $0.318 cents per gallon every time you fill up, which equals approximately 12.8% of the gas price as of January 2019. Filling up a tank of gas and taking a scenic tour through the Green Mountain State isn’t bad for your health, but the carbon emissions are bad for the environment and for our resource reserve, which explains why consumers pay an additional excise tax across the country.

Those who own a home in Vermont should be prepared to pay some of the heftiest property taxes in the United States. The lowest tax rate is found in Averill County at 0.98% but the highest reaches all the way up to Wilmington County at 2.25%. That’s more than double the nation’s average of 1.08%.

There are two types of property tax in Vermont, which helps explain why the rates are so high: the state education tax and local property tax. The homestead education tax rate is based primarily on the education spending per equalized pupil of all the pupils residing in your town. If you live in a town that has more than one school district, then the tax rate is each of those combined.

Whether you’re up in the mountains or live in downtown Burlington, homeowners must file a Homestead Declaration (HS-122) every year in order to identify your property as the homestead of a Vermont resident. This Declaration tells the VT Dept. of Taxes that you own and occupy your home as a domicile, which is different than a residence.

A “domicile” is a legal concept of a person’s home and has implications for Vermont’s income tax, statewide education tax, and property tax adjustment. To qualify as a homestead, you cannot:

• Use the property for a commercial purpose
• Use the property as a vacation home
• Lease the property for more than 182 days per year

Homesteads are taxed differently than non-homestead properties (previously called nonresidential). Those who file a Homestead Declaration and meet the income criteria may be able to claim a Property Tax Adjustment up to $8,000. If you take a look at the sample VT property tax bill below, you’ll see line items for the state education tax as well as the municipal tax, which is set as needed to raise money for municipality highway and general fund expenses.

Property tax can get complicated, especially if you rent a portion of your home and your bill is split between homestead and non-homestead rates. For help filing HS-122 and claiming your Property Tax Adjustment, talk to one of our experts.

In 2016, Vermont changed how the estate tax is calculated in the state. Estate and fiduciary taxes now only apply to estates over $2,750,000 at a flat rate of 16%.

To offset the financial burden placed on the residents of the Green Mountain State, VT offers its taxpayers a generous number of credits they may be eligible to claim after calculating their Vermont tax bill. Credits reduce the amount of taxes you’re required to pay and increase the tax return you might be owed.

Tax credits are offered at the federal level, but there are also Vermont tax credits that are unique to the state.

• Vermont Earned Income Credit (EIC)

  If you qualify for the federal EIC, then you also qualify for the Vermont EIC, which is 36% of the federal amount as of 2018. This increased from 32% in the previous tax year.

• Vermont Charitable Contribution Credit

  Effective 2018, Vermont created a nonrefundable tax credit of 5% on the first $20,000 of eligible contributions per tax year.

• Vermont Higher Education Investment Plan (VHEIP) Credit

  To encourage saving for college, Vermont provides a 10% credit of the first $2,500 contributed to a beneficiary’s account.

• Research and Development (R&D) Credit

  Taxpayers who claimed the R&D credit on their federal return may qualify for a state credit for expenditures in Vermont.

• Credit Options for Child and Dependent Care

  The state offers relief to Vermont employees with dependent care expenses with two credits (you can only claim one or the other): the Credit for Child and Dependent Care or the Low-Income Child and Dependent Care Credit.

• Charitable Housing Investment Credit

  Encourages investment in eligible housing charities.

• Credit for Income Tax Paid to Another State or Province

  A tax credit for income that is taxed twice, both by Vermont and another taxing body.

Trump’s Tax Cuts and Jobs Act (TCJA) suspended personal exemptions at the federal level, but the Green Mountain State chose to maintain this structure in their own tax code. The personal exemption amount in Vermont is $4,150 for each individual taxpayer, their spouse — including deceased spouses if filing jointly — and qualifying dependents. As of 2018, some Social Security beneficiaries will be able to claim an exemption for the taxable portion of their Social Security benefits.

Vermont also allows its residents to declare a standard deduction on their tax return, which is a flat deduction of taxable income. Whereas tax credits lower your bill by the dollar, tax deductions are different because they reduce your overall liability and can place you into a lower bracket with a lower rate.

Currently, the Vermont-defined standard deduction is $6,000 for single filers, $9,000 for heads of households, and $12,000 for married couples filing jointly. An additional $1,000 deduction is available to filers who are 65 years or older and/or blind. These amounts are adjusted annually for inflation.

Personal income tax in VT is filed using Form IN-111, Vermont Individual Income Tax Return. When filing your state tax return, you’ll need to enter your

1. Taxable income from your federal tax return (found on Form 1040) and
2. Your adjusted gross income

To report your AGI, you must include a statement that displays your income earned. Employed taxpayers will provide their Form W-2, which is a document provided by the IRS that shows your annual wages and amount taxes withheld. Those who are self-employed must report their income using Form 1099.

Self-employed individuals are required to pay quarterly estimated tax on income that is not subject to withholding. This includes self-employed earnings in addition to:

• Interest
• Dividends
• Rental Income
• Alimony

You can use our Vermont income tax calculator or Form IN-114 to estimate how much tax you will owe. If you do not pay enough estimated tax each quarter, you’ll face interest and penalties when it comes time to file your annual income tax return. The interest and penalty calculations in Vermont are:

• Interest of 0.5% per month
• Penalty of 1% per month

Attention, Vermont Farmers and Fishers: Federal law states that individuals who receive two-thirds of their income from farming or fishing are not required to make estimated income tax payments.

Both employed and self-employed residents are encouraged to stay on top of their financial obligation to the state by making timely tax payments. If you fall too far behind on your taxes, you may face an expensive back tax debt that could be hard to climb yourself out of without the help of a tax professional. You can make payments online using the myVTax portal via ACH debit, pay via credit card (with a 3% service fee), or by mailing a personal check, cashier’s check, or money order.

If you need an extension to file your taxes, the state of Vermont allows an additional six months to file Form IN-111 past its April due date. However, you must apply for the extension before your return is due and pay any outstanding taxes by the deadline regardless of whether your application is approved.

There are some states with the weirdest tax laws, like the $0.08 bagel tax in New York. Vermont has a few of its own quirks; for example, buskers on Church Street are required to pay tax to the city of Burlington on their earnings from street performances.

Remember that your Vermont state taxes are separate from your federal income tax liability. After using our Vermont tax calculator, calculate federal taxes for a full picture of what you owe.

This information is current as of 2019. Taxpayers should consider special circumstances that may impact their individual state tax return.

Sources:

Seattle Times Vermont House Passes 92 Percent Tax on E-Cigarettes; USA Today Gas Tax by State; SVPR The Money is No Joke: These Performers Make a Living on the Street; VT Dept. of Taxes Exempt Items, Individuals, Property Owners.