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Bill

H 74

An act relating to exempting Social Security benefits from Vermont income tax

2025-2026 Regular Session Introduced by Richard Bailey and 61 co-sponsors

Exempts Social Security benefits from Vermont state income tax, reducing retirees’ tax liability and improving retirement affordability.

Read first time and referred to the Committee on Ways and Means
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WeVote Research Nonpartisan
Bill Summary · H 74

Bill Summary: H 74 (2025-2026) – Vermont

Purpose and Intent

  • H 74 proposes exempting Social Security benefits from Vermont state income tax.
  • The core aim is to reduce the tax burden on retirees and align Vermont with other states that do not tax Social Security income, potentially improving retirement affordability and economic security for residents receiving Social Security.

Key Provisions and Changes

  • Exemption: Social Security benefits would be excluded from Vermont individual income tax calculations.
  • Scope: Applies to benefits received by eligible taxpayers, effectively reducing taxable income by the amount of Social Security benefits counted for federal purposes.
  • Interaction with Other Deductions/Credits:
    • The bill would determine how the exemption interacts with other Vermont tax provisions (standard deduction, personal exemptions, credits) and whether any phase-ins or caps apply.
    • It may specify treatment for partial years, nonresident income, or other special cases (e.g., military or certain railroad retirement benefits in some states’ frameworks).

Who Would Be Affected

  • Primary beneficiaries: Vermont residents who receive Social Security benefits (retirees, disabled individuals, or survivors) who currently pay Vermont state income tax on those benefits.
  • Secondary/Indirect effects:
    • Taxpayers with mixed income (Social Security plus wages, investments) would see a lower overall Vermont income tax liability.
    • Tax administration and compliance: Vermont Department of Taxes would need to implement the exemption in tax forms, instructions, and software, including any required taxpayer education.

Procedural and Timeline Aspects

  • Action History: Read first time and referred to the Committee on Ways and Means on January 23, 2025.
  • Next steps (typical legislative path for similar bills):
    • Committee consideration, potential amendments.
    • Passage by both chambers of the Vermont General Assembly.
    • If enacted, the bill would require the governor’s signature to become law and a specified effective date (often for tax years beginning after a certain date).
  • Fiscal Note/Revenue Impact (not provided in the summary): Exempting Social Security from state tax typically reduces state revenue; the bill’s sponsors and Ways and Means Committee would evaluate the annual revenue impact and any broader economic effects.

Practical Impact and Considerations

  • Revenue: States that fully exempt Social Security generally experience a revenue decrease relative to current tax structures; potential offset considerations include adjusting brackets, credits, or other revenue sources.
  • Equity and Economic Effects: The exemption targets retirees and households reliant on Social Security, potentially increasing disposable income for seniors and contributing to local spending, with possible positive effects on senior services and housing stability in communities.
  • Administration: Requires updates to tax software, forms, and guidance; may necessitate clarifications on residents’ eligibility, nonresidents, and part-year residents.

Notes for Readability

  • The bill is currently in the early stage of the legislative process (first reading and referral to Ways and Means), meaning substantive details may be refined as it moves through committee deliberations.
  • Specifics such as effective dates, phase-ins, interaction with current tax credits, and any exemptions for particular categories (e.g., railroad retirement) would be clarified in committee amendments and the fiscal note.

If you’d like, I can pull together a side-by-side comparison with Vermont’s current tax treatment of Social Security, or draft potential implementation questions for a committee hearing.

Compiled from official sources — confirm details with the bill’s official record.

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