Active-duty pay
Taxed
Active-duty pay taxable to VT residents.
State Guide · VT
Vermont — Military Tax Treatment
Vermont's 2025 military retirement exemption is income-tested — if your combined income is under $125K (single) you're fully exempt. Above that, it phases out. Guard drill pay is taxable regardless.
2026 update
2025-effective full exemption for AGI ≤ $125K; partial phase-out $125K–$175K.
Tax treatment at a glance
Guard & Reserve drill pay
Taxed
Guard and Reserve drill pay is taxable Vermont income regardless of the retirement exemption.
Military retirement pay
Partially Exempt
Military retirement exempt for residents with AGI ≤ $125K (single) or partially exempt $125K–$175K AGI. Effective 2025 tax year.
The numbers · verified for tax year 2025
Top marginal rate
8.75%
Retirement-pay exemption
Conditional
Under Act 71 (effective 2025), all military retirement and survivor-benefit income is fully exempt when AGI is $125,000 or less; the exemption phases down between $125,000 and $175,000, and there is no exemption at AGI of $175,000 or more.
Standard deduction
For 2025 the standard deduction is $7,650 single / $15,300 married filing jointly (plus $1,250 if 65+ and/or blind). Brackets top out at 8.75%.
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — Vermont included.
Survivor Benefit Plan (SBP)
Follows retirement
SBP annuities likely follow the retirement exemption — AGI-based. Verify with Vermont DoR.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in Vermont, Vermont cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to Vermont can keep Texas as their tax domicile and avoid Vermont state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether Vermont exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01Verify 2026 income thresholds with VT DoR — may be adjusted
- 02VT IN-112 for retirement income exclusion
- 03If retirement income + other income pushes you above $125K, calculate the phase-out carefully
Veteran-specific tax benefits
Disabled veteran property tax exemption.
Official authority
https://tax.vermont.gov/ ↗State tax law changes annually. Verify current rules with the Vermont Department of Revenue before making any tax decision.
Vermont military tax — common questions
Does Vermont tax military retirement pay in 2026?
Vermont partially taxes military retirement pay. Military retirement exempt for residents with AGI ≤ $125K (single) or partially exempt $125K–$175K AGI. Effective 2025 tax year.
Does Vermont tax active-duty military pay?
Vermont taxes active-duty military pay for state residents. Active-duty pay taxable to VT residents. Under the SCRA, Vermont can only tax the military pay of service members who are legally domiciled in Vermont — not those merely stationed there.
Does Vermont tax National Guard and Reserve drill pay?
Vermont taxes Guard and Reserve drill pay. Guard and Reserve drill pay is taxable Vermont income regardless of the retirement exemption.
Is VA disability compensation taxed in Vermont?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including Vermont — taxes it as income.
If I'm stationed in Vermont but claim another state, can Vermont tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, Vermont cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
What changed for military taxes in Vermont for 2026?
2025-effective full exemption for AGI ≤ $125K; partial phase-out $125K–$175K.
Related tools
Other state guides