Vermont retired pay
Is military retirement taxed in Vermont?
Partly taxed
Exempt Up to $125,000 AGI Since 2025.
Yes, at most incomes. Starting with tax year 2025, Act 71 exempts all military retirement and survivor benefit income when federal AGI is $125,000 or less, for any filing status. Between $125,000 and $175,000 the exempt share shrinks in a straight line, and at $175,000 or more none of it is exempt.
- The law
- 32 V.S.A. § 5830e(d)
- Current rule since
- tax year 2025 (Act 71 of 2025, signed June 25, 2025, retroactive to January 1, 2025); through 2024, military retired pay was treated like Civil Service Retirement System income, capped at $10,000 with low income limits
- Where you claim it
- Schedule IN-112, Part I, line 13 (Military retirement and Survivor Benefit exempt from taxation), using the Military Retirement Income Exemption Worksheet in the 2025 income booklet
Read on Vermont’s own sources October 9, 2026
What Vermont’s rule is worth on your retired pay
Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at Vermont’s 6.6% rate on 2025 taxable income around $75,000 (single); the top 8.75% starts over $249,700 for tax year 2025; change it to your own bracket if you know it.
One rate applied to the whole amount, not Vermont’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.
How it works in Vermont
Open the Military Retirement Income Exemption Worksheet in the 2025 income booklet. Section I checks that Form 1040, line 5b includes retired pay or survivor benefits from DFAS, then compares your AGI on Form IN-111, line 1 with $175,000 and with $125,000.
At AGI of $125,000 or less, put all taxable military retirement and survivor benefit income on Schedule IN-112, Part I, line 13. Between the thresholds, subtract AGI from $175,000, divide by $50,000, round to two decimal places, and multiply the result by the pension. At $175,000 or more there is no exemption.
Assume joint AGI of $150,000 including a $48,000 pension. $175,000 minus $150,000, divided by $50,000, is 0.50, so $24,000 is exempt and $24,000 is taxed. Drop AGI to $120,000 and all $48,000 comes off; raise it to $176,000 and none does.
Single and joint filers share the same two thresholds. A married couple with combined AGI of $160,000 keeps 0.30 of the pension exempt, while a single retiree with the same pension and $120,000 of AGI exempts all of it.
Act 71 also ended the old choose-one rule for this income. The booklet lets a filer who uses the military exemption claim one more § 5830e exclusion, such as Social Security, which is fully excluded for 2025 at AGI up to $55,000 single or $70,000 joint.
Survivor Benefit Plan annuities
Exempt on the same AGI scale. 32 V.S.A. § 5830e(d) covers U.S. military survivor benefit income received by an eligible beneficiary, and the 2025 worksheet treats DFAS survivor benefits on Form 1040, line 5b the same as retired pay.
Active-duty pay in Vermont
Exempt when earned outside Vermont. Full-time active duty pay for service outside Vermont is exempt military pay on Schedule IN-113, line 32, along with up to $2,000 of Guard or Reserve training pay earned in Vermont when AGI is under $50,000 (2025 booklet).
What trips Vermont retirees up
- The test uses federal AGI, and the pension is part of it. A retiree with $90,000 of wages and a $50,000 pension sits at $140,000 and loses 30% of the exemption.
- The 2025 rate schedules say that when AGI exceeds $150,000, Vermont tax is the greater of the schedule amount or 3% of AGI less U.S. obligation interest. That floor runs on AGI, so for a filer between $150,000 and $175,000 it can cancel part of the benefit of a partial exemption.
- Through 2024, military retired pay was handled as though it were Civil Service Retirement System income: at most $10,000, in full only at AGI up to $50,000 single or $65,000 joint, gone at $60,000 or $75,000, and only if you skipped the Social Security exclusion. An amended 2024 return still uses that rule.
- Vermont Tax's military page points to a Vermont Guide for Military and National Services marked update pending (read October 9, 2026). File from the 2025 booklet, which carries the Act 71 rule.
Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. Vermont’s other servicemember protections are on the Vermont SCRA page.
Frequently asked questions
Does Vermont tax military retirement?
Not at most incomes, starting with tax year 2025. Act 71, signed June 25, 2025, amended 32 V.S.A. § 5830e(d) so that all federally taxable military retirement income is exempt when federal AGI is $125,000 or less, for any filing status. The exempt share shrinks between $125,000 and $175,000, and at $175,000 nothing is exempt. Claim it on Schedule IN-112, Part I, line 13, using the worksheet in the 2025 income booklet (read October 9, 2026). Through 2024 the exclusion was capped at $10,000 and limited to low incomes.
Is SBP taxed in Vermont?
Not if your AGI is $125,000 or less. Act 71 added U.S. military survivor benefit income received by an eligible beneficiary to the same exclusion as retired pay, starting with tax year 2025. The phase-out works the same way: a partial exemption between $125,000 and $175,000 of AGI and none at $175,000 or more. The 2025 booklet's worksheet asks about DFAS retirement or survivor benefit income on Form 1040, line 5b, and the amount goes on Schedule IN-112, line 13.
How does the Vermont military retirement phase-out work?
Between $125,000 and $175,000 of federal AGI, the exempt share is $175,000 minus your AGI, divided by $50,000 and rounded to two decimal places, times your taxable military retirement and survivor income. At $140,000 of AGI the share is 0.70; at $165,000 it is 0.20. The thresholds are identical for single and joint filers, so a married couple's combined income is measured against the same $125,000 line as a single retiree's. AGI includes the pension itself, per the 2025 booklet worksheet.
Can I take the Vermont military exemption and the Social Security exemption?
Yes, from tax year 2025. Under 32 V.S.A. § 5830e(e)(2), as amended by Act 71, a taxpayer eligible for the military exclusion may take it regardless of whether one of the section's other exclusions is also elected. The 2025 booklet says filers using the military exemption may claim one additional exclusion, such as Social Security. The Social Security exclusion has its own income limits: full at AGI up to $55,000 single or $70,000 joint for 2025. Before 2025 you had to choose one.
Sources, read October 9, 2026
- Military and Veterans (Vermont Department of Taxes)
- 2025 Vermont Income Tax Return Booklet, Schedule IN-112 and Military Retirement Income Exemption Worksheet (Vermont Department of Taxes)
- 32 V.S.A. § 5830e. Retirement income; Social Security income (Vermont General Assembly)
- Act 71 of 2025, as enacted (Vermont General Assembly)
Heads up: SCRA Saver publishes general information, not legal or financial advice. Laws change and every situation differs. Confirm details with your installation legal assistance office (free for service members) or a licensed professional.