Vermont Income Tax Brackets & Rates 2026

Vermont Income Tax Overview for 2026

Vermont (VT) uses a graduated income tax system with 4 brackets, where rates range from 3.35% to 8.75%. Vermont has four brackets with a top rate of 8.75%.

For the 2026 tax year, Vermont residents must file both state and federal income tax returns. Your VT state tax is calculated on your state taxable income, which generally starts with your federal adjusted gross income (AGI) and applies state-specific adjustments and deductions. The Vermont standard deduction is $7,000 for single filers and $14,050 for married couples filing jointly.

Because Vermont uses graduated brackets, your effective tax rate will be lower than the top marginal rate. Only the portion of income within each bracket is taxed at that rate. Your combined federal and VT effective tax rate depends on your total income, filing status, deductions, and credits.

SALT Deduction and Vermont Taxes in 2026

The State and Local Tax (SALT) deduction allows taxpayers who itemize on their federal return to deduct state and local taxes paid, including state income taxes and property taxes. Under the One Big Beautiful Bill Act (OBBBA), the SALT cap has been raised to $40,000 for the 2026 tax year, up from the $10,000 cap that was in place since 2018.

For Vermont residents, this is significant. With a top state rate of 8.75%, many VT taxpayers pay substantial state income taxes. Combined with property taxes, the $40,000 SALT cap provides meaningful relief compared to the previous $10,000 limit. Taxpayers should compare their total SALT amount against the $40,000 cap to determine whether itemizing benefits them over the standard deduction.

The $40,000 SALT cap applies to the combined total of state income taxes (or sales taxes if elected), local income taxes, and property taxes. This cap is the same regardless of filing status. Use our SALT Deduction Calculator to determine your optimal strategy.

How Federal Taxes Apply to Vermont Residents

All Vermont residents are subject to federal income tax, which uses seven progressive brackets for 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The federal standard deduction is $16,100 for single filers and $32,200 for married filing jointly. Under the OBBBA, new provisions include tax-free overtime pay, tax-free tips for service workers, and an additional $4,000 deduction for seniors aged 65 and older.

Your total tax liability as a VT resident combines your federal tax obligation with your Vermont state tax plus FICA taxes (Social Security at 6.2% and Medicare at 1.45%). Self-employed individuals in Vermont owe both the employee and employer portions of FICA (15.3% total) but can deduct the employer portion. Use our Federal Income Tax Calculator to compute your exact federal liability.

Tax Planning Tips for Vermont Residents

• Evaluate itemizing vs. standard deduction: With the $40,000 SALT cap, VT residents with high state income and property taxes should compare their itemized deductions against the standard deduction each year.
• Maximize retirement contributions: Contributing to a 401(k) or traditional IRA reduces both your federal and Vermont taxable income, providing a double tax benefit.
• Consider HSA contributions: If eligible, an HSA provides triple tax savings: deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses. The 2026 limit is $4,300 for individuals.
• Review withholding: Use your combined federal and state tax liability to ensure proper withholding, avoiding both underpayment penalties and excessive refunds.
• Track estimated payments: If you have self-employment income or significant investment income, make quarterly estimated payments to both the IRS and Vermont to avoid penalties.

Vermont vs. Other States: Tax Comparison

Compared to the national landscape, Vermont's top rate of 8.75% is above average. States like Florida, Texas, and Nevada have no income tax at all, while states like California (12.3%) and New York (10.9%) have even higher top rates. When comparing states, consider the full tax picture including property taxes, sales taxes, and cost of living, not just income tax rates.

Vermont Tax Overview

Vermont (VT) has a graduated income tax system with 4 brackets. Vermont has four brackets with a top rate of 8.75%.

Like all states, Vermont generates revenue through a combination of taxes including income taxes, sales taxes, property taxes, and various fees. Residents should consider the full picture of state and local taxes when evaluating their tax burden, not just the income tax rate. Property taxes vary by county and municipality, and local governments may impose additional taxes or fees that affect the overall cost of living.

Vermont residents are subject to federal income taxes regardless of their state tax situation. For the 2026 tax year, federal rates range from 10% to 37%, with a standard deduction of $16,100 for single filers and $32,200 for married filing jointly. The OBBBA introduced tax-free overtime, tax-free tips for service workers, and enhanced deductions for seniors.

Vermont Tax Deductions and Credits

Vermont offers various deductions and credits that can reduce your state tax liability. The state standard deduction is $7,000 for single filers and $14,050 for married filing jointly. Check with the VT Department of Revenue for a complete list of available deductions and credits specific to your filing status and income level.

Federal deductions available to all Vermont residents include contributions to retirement accounts (401(k) up to $23,500, IRA up to $7,000), Health Savings Account contributions ($4,300 individual, $8,550 family), student loan interest deduction (up to $2,500), and educator expenses (up to $300). The SALT deduction under the OBBBA allows deducting up to $40,000 in combined state and local taxes, which can significantly benefit VT residents who itemize.

Families in Vermont should explore federal credits including the child and dependent care credit, the adoption credit, the American Opportunity and Lifetime Learning education credits, and the saver's credit for retirement contributions. These credits directly reduce your tax liability dollar-for-dollar, making them more valuable than deductions of the same amount.

Tax Tips for Vermont Residents

Vermont residents should file their state return by April 15 to avoid late-filing penalties. E-filing is the fastest way to receive your refund, with most state refunds processed within 2-4 weeks. If you cannot pay your full state tax liability, file on time anyway and request a payment plan to minimize penalties. Consider making quarterly estimated payments if you have significant self-employment, investment, or rental income to avoid underpayment penalties from Vermont.

Key 2026 federal provisions under the OBBBA that benefit Vermont residents include: tax-free overtime pay (beyond 40 hours per week), tax-free tips for service workers, an additional $4,000 deduction for seniors age 65+, and the increased SALT cap of $40,000. Review these provisions to determine if they apply to your situation and adjust your withholding accordingly to maximize take-home pay throughout the year.