An act relating to exempting military retirement and survivor benefit income from Vermont income tax

2025-2026 Regular Session Introduced by Scott Beck and 20 co-sponsors

Vermont would fully exempt military retirement income and survivor benefits from state income tax.

Read 1st time & referred to Committee on Finance

Summary of Bill: S.17 (2025-2026) – Vermont

Purpose and Intent

S.17 proposes to exempt military retirement income and survivor benefits from Vermont income tax.

The bill aims to provide tax relief to military retirees and their surviving spouses by removing a source of annual tax liability on eligible retirement and survivor benefits.

Key Provisions

Exemption: Military retirement income sourced from service in the U.S. Armed Forces would be exempt from Vermont personal income tax.

Survivor Benefits: Survivor benefits paid as part of military retirement (e.g., benefits received by a spouse or other eligible beneficiary upon the retiree’s death) would also be exempt from Vermont income tax.

Scope: The exemption applies to qualifying military retirement pay and related survivor benefits; specifics (e.g., qualifying ranks, service types, or benefit programs) would be defined within the bill or accompanying fiscal notes/rules.

Administration: The bill would require amendments to Vermont’s income tax statutes to exclude the specified retirement and survivor benefits from taxable income.

Interaction with Other Deductions/Credits: The exemption would operate within the federal/state tax framework, reducing taxable income, potentially affecting eligibility for other deductions or credits dependent on taxable income.

Affected Parties

Primary Beneficiaries: Vermont military retirees receiving retirement pay.

Secondary Beneficiaries: Survivors/beneficiaries (e.g., spouses) receiving military survivor benefits.

Taxpayers: Other Vermont residents could see indirect effects on state revenue and potential shifts in tax liability distribution, though the direct impact is targeted to the exempted income.

Procedural and Timeline Considerations

Introduction and Referral: Read 1st time and referred to the Senate Committee on Finance on January 17, 2025.

Next Steps: The Finance Committee would review, possibly amend, and report the bill to the full Senate. If advanced, the bill would proceed through the standard legislative process (potential hearings, amendments, votes in Senate and House, and final approval or negotiation on differences).

Potential Impacts

Fiscal: Exemption of military retirement and survivor benefits would reduce Vermont personal income tax revenues to the extent that such income would have been taxable. The exact revenue impact would depend on the number of beneficiaries and the size of exempted benefits.

Social/Policy: The bill aligns Vermont tax policy with the goal of recognizing and supporting military service members and their families, potentially improving post-service financial stability for veterans and survivors.

Administrative: Requires updating state tax forms, instructions, and possibly guidance to ensure proper application of the exemption.

Notes

The bill currently lists numerous co-sponsors, indicating broad legislative interest and cross-partisan support.

Specific criteria for eligibility (e.g., types of military retirement programs, periods of service, or survivor-benefit definitions) would be clarified in the bill text and any accompanying fiscal notes or implementing regulations.