Vermont, with its beautiful scenery, change of seasons, small towns and cities, and outdoor activities can be an attractive place for retirees. Top Retirements indicates that the cost of living index in Burlington is above the national average and home prices in Vermont have generally also stayed above the national average although they vary by location in the state. The overall state and local tax burden in Vermont is also quite high – 8th highest nationally, according to the Tax Foundation.
State income tax
State income tax rates in Vermont range from 3.55 percent up to 9.40 percent on taxable income over $372,950 (in effect for 2009). Vermont state income tax is based on federal taxable income with certain adjustments. The retirement income you report on your federal tax return would generally be subject to Vermont state income tax. But regular tier 1 rail road retirement benefits and supplemental tier 2 benefits are exempt from Vermont income tax.
You can deduct interest from U.S. government obligations such as U.S. Treasury bonds, bills or notes that was included in taxable income on your federal tax return, including income from mutual funds that invest in U.S. government obligations. Interest, dividends and other distributions from state and local government obligations outside Vermont are taxable in Vermont.
Property taxes in Vermont are relatively high compared to other states. The Vermont Department of Taxes has indicated that the education property tax rates for 2010 on homesteads will be $0.86 multiplied by the district spending adjustment for the municipality per $100.00 of equalized property value. According to the Vermont Property Owners Report, the average effective total residential school tax rate in 2009 was $1.21 per $100 of property value.
If your household income is less than $90,000, you can qualify for reduced school taxes on your homestead. Homeowners with household income up to $106,000 can qualify for a partial property tax reduction. If your household income is less than $47,000 you can qualify for a reduction in your property tax assessment and/or a property tax rebate, including if you rent. Vermont homeowners who are veterans can qualify for a property tax exemption on the first $10,000 of appraisal value and up to $40,000 if the town approves.
Vermont has a 6 percent state sales tax and local jurisdictions can add an additional 1 percent. Prescription and non-prescription drugs, medical items, food, residential fuel and electricity, and clothing and shoes with a price of $110 or less are exempt from sales tax. There is a 9 percent tax on restaurant meals and lodging and 10 percent on alcoholic beverages served in restaurants. An additional local option of 1 percent can be added in both cases.
Highlights of 2010 Tax Legislation – Vermont Department of Taxes
A Special Report On Vermont Real Estate Taxes – Vermont Real Estate Today
Taxes by State – Vermont – Retirement Information Living Center
Vermont – The Tax Foundation
Vermont Income Tax Return Booklet – Vermont Department of Taxes
Vermont Retirement Guide – Top Retirements