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    Vermont Tax Guide 2026

    TaxKiln Editorial · Last reviewed:

    Vermont imposes a 4-bracket personal income tax topping at 8.75% on income over $213,150 single / $259,500 MFJ (32 V.S.A. §5822). State sales tax is 6% with local-option of 1% — combined averages ~6.36%. Vermont provides a 40% exclusion for net long-term capital gains (32 V.S.A. §5811(21)(B)). Property tax averages ~1.83% — the THIRD-HIGHEST in the US. The Vermont estate tax exempts $5M (lower than federal $15M) and has no portability.

    Personal income tax

    32 V.S.A. §5822 establishes 4 brackets (single, 2026 indexed): • 3.35% on first $45,400 • 6.6% from $45,400 to $110,050 • 7.6% from $110,050 to $213,150 • 8.75% above $213,150 MFJ brackets approximately equal to single's first 3 + higher top threshold of $259,500. Vermont uses FEDERAL TAXABLE INCOME as the starting point (not AGI), then applies VT additions/subtractions. This is a unique structure — most states start with federal AGI. Standard deduction: $7,500 single / $15,050 MFJ (VT-specific, indexed; about half of federal SD). Personal exemption: $5,000 per taxpayer/dependent (indexed) — Vermont retained personal exemptions even after TCJA suspended them at the federal level. Social Security: PARTIAL exemption — fully exempt for filers with AGI ≤ $50,000 single / $65,000 MFJ; partial above with full phase-out by $60,000 single / $75,000 MFJ (32 V.S.A. §5830e). Pension exclusion: similar structure for military retirement ($10,000 exclusion for income < $50k single / $65k MFJ thresholds). No state QBI deduction (VT does NOT conform — adds back federal §199A). No state AMT.

    Capital gains exclusion

    32 V.S.A. §5811(21)(B) provides a capital gains adjustment: • Method A (flat): up to $5,000 of net adjusted capital gains excluded from VT taxable income • Method B (percentage): 40% of NET ADJUSTED CAPITAL GAINS from sale of QUALIFYING ASSETS (real property held > 3 years; stock in qualifying small business held > 3 years; certain other long-term holdings) Taxpayer elects the GREATER of A or B. Qualifying assets are NARROWER than federal long-term — VT excludes publicly-traded securities from the 40% method (use $5,000 flat exclusion instead). Effective rate on qualifying 40%-method LTCG at the top bracket: 8.75% × 60% = 5.25% — moderately favorable. Effective rate on publicly-traded LTCG: full 8.75% on the amount above $5,000 — high. This structure favors closely-held business owners and direct real estate investors over passive stock-market investors.

    Sales tax and Meals & Rooms tax

    State sales tax 6% (32 V.S.A. §9771). Local option 1% in many communities — combined averages 6.36%. Local-option towns include Burlington, South Burlington, Stowe, Killington, Montpelier, Brattleboro, Manchester, and several others (the towns explicitly opted in). Groceries: EXEMPT. Prescription drugs: exempt. Clothing: EXEMPT (Vermont is one of 4 states fully exempting clothing — others MA partial, MN, NJ, PA). Most services: exempt. MEALS AND ROOMS TAX (32 V.S.A. §9241): • 9% on restaurant meals and prepared food • 10% on alcoholic beverages served on-premises (includes alcohol portion of restaurant bill) • 9% on lodging (hotels, B&Bs, short-term rentals) Local Option Meals/Rooms tax: 1% added in opt-in towns. Economic nexus (32 V.S.A. §9701(9)): $100,000 in cumulative sales OR 200 transactions. Motor Vehicle Purchase & Use Tax: 6% on vehicle purchase (separate from sales tax; cap at $2,075).

    Property tax — third-highest in US

    Statewide average effective property tax ~1.83% — third-highest in the US (after New Jersey and Illinois). Heavy reliance on property tax for school funding under Vermont's Act 60/68 statewide education property tax framework. Counties: Chittenden (Burlington): ~1.94%, Washington (Montpelier): ~2.13%, Windsor: ~1.99%, Bennington: ~2.04%, Rutland: ~2.21%. Vermont property tax has TWO COMPONENTS: 1. HOMESTEAD EDUCATION TAX: paid by primary-residence owners; rate set statewide based on per-pupil spending in the school district (typically ~$1.50–$2.50 per $100 of assessed value, varies by district) 2. NON-HOMESTEAD (NON-RESIDENTIAL) EDUCATION TAX: paid by second homes, rentals, commercial; rate ~$1.59 per $100 statewide (FY 2024) PLUS municipal property tax on top of education tax INCOME SENSITIVITY (32 V.S.A. §6066): owner-occupied homestead property tax is REDUCED based on household income — for households < ~$90,000 income, the homestead education tax is capped as a percentage of income (typically 2%–3%), with the state subsidizing the difference. This is Vermont's UNIQUE income-based property tax relief. Veteran/disabled exemptions: $40,000 reduction for qualifying disabled veterans. Net effect: HIGH NOMINAL property tax (~1.83% avg) but MIDDLE-INCOME homestead owners see substantial INCOME-SENSITIVE reduction — a household earning $60k with a $300k home might pay only $1,800/yr (effective ~0.6%) after income sensitivity. HIGH-INCOME homeowners or second-home/rental owners pay full ~1.83%+ rate.

    Estate tax

    32 V.S.A. §7442a imposes Vermont estate tax on estates exceeding $5,000,000 (fixed, NOT indexed to inflation — meaningful planning issue as inflation erodes real value). Rate: graduated up to 16% on amounts above exemption. No portability between spouses (federal portability exists; VT does not honor). First-to-die's unused exemption is LOST. No gift tax. VT 2-year lookback on gifts. No inheritance tax. A VT resident with $7M estate owes ~$320,000 in VT estate tax (graduated bracket calculation) vs $0 federal estate tax ($15M federal exemption). Significant planning issue for VT residents with $5M–$15M estates — bypass trusts, lifetime gifting, or out-of-state residency planning common.

    Business considerations

    Corporate income tax (32 V.S.A. §5832): 3 brackets: • 6% on first $10,000 • 7% on $10,000 to $25,000 • 8.5% above $25,000 Minimum tax: $300 for active corporations. LLC fee: $35 annual report (11 V.S.A. §4123 / §4001 — operating fees apply). Apportionment: single-sales factor for most industries (post-2018 reform). PTET: Vermont enacted PTET via S 67 of 2024 — effective 2025 tax year, entity-level election at top individual rate (8.75%); refundable credit to owners. Significant federal SALT-cap benefit for VT pass-through owners given high state rate. Unemployment tax: 0.40%–5.40% on $14,800 wage base. Land Gains Tax (32 V.S.A. Chapter 236): tax on gains from sale of Vermont land held < 6 years — graduated rate 5%–80% (highest on quick flips). Designed to discourage speculation. Exemptions: principal residence (after 6 yrs+ ownership), agricultural land, qualifying transfers. The combination of: 8.75% top income tax, 1.83% property tax, 8.5% corporate, $5M estate exemption, and Land Gains Tax produces one of the highest overall state tax burdens in the US — though VT's income-sensitive property tax relief and capital-gains preferences mitigate for owner-occupant middle-income residents.

    Worked example: Lillian Beauchamp, Burlington-based architect (single, 2026)

    Lillian is an architect partner earning $235,000 K-1 income. Owns a $475,000 Burlington home (primary residence/homestead). Household AGI matches her income of $235,000.

    Federal: SE tax on guaranteed payments + federal income tax + §199A 20% QBI (architecture = non-SSTB → full QBI). Vermont: Federal taxable income flow: ~$220,000 (after federal SD/QBI) VT standard deduction: $7,500 VT personal exemption: $5,000 VT additions: +federal QBI add-back (~$44,000) VT taxable: ~$251,500 Tax (2026 brackets, single): $45,400 × 3.35% = $1,521 $64,650 × 6.6% = $4,267 $103,100 × 7.6% = $7,836 Above $213,150 ($38,350) × 8.75% = $3,356 Total: $16,980 Less PTET credit (if architecture partnership elects PTET): partnership pays $19,800 (8.75% × $226k allocable to her). Refundable credit to Lillian: $19,800. Net VT personal tax after PTET credit: ~$0 (with refund) — federal SALT benefit ~$7,300 (37% × $19,800). Property tax on $475k Burlington home (homestead education tax): Burlington homestead education rate ~$1.75/$100 + municipal ~$0.65/$100 = ~$2.40/$100 effective $475,000 × 2.40% = $11,400/yr (BEFORE income sensitivity) Income sensitivity (§6066): her AGI $235k EXCEEDS the cap level (~$90k), so she pays FULL property tax → $11,400/yr no relief Note: high-income residents pay the full rate; only low/middle-income get the income-sensitive cap. Net VT annual burden: $16,980 income tax (or $0 after PTET) + $11,400 property tax. Total ~$28,000 (or ~$11,400 if PTET elected).

    Statute references

    • Personal income tax (4-bracket, top 8.75%) — 32 V.S.A. §5822
    • Social Security partial exemption — 32 V.S.A. §5830e
    • Capital gains 40% / $5,000 exclusion — 32 V.S.A. §5811(21)(B)
    • Sales tax 6% — 32 V.S.A. §9771
    • Meals and Rooms Tax — 32 V.S.A. §9241
    • Economic nexus (Wayfair) — 32 V.S.A. §9701(9)
    • Corporate income tax — 32 V.S.A. §5832
    • Income-sensitive property tax — 32 V.S.A. §6066
    • Estate tax — 32 V.S.A. §7442a
    • Land Gains Tax — 32 V.S.A. Chapter 236

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