Individual Income

Military Personnel – Income Exemptions

Read more about Property Tax Exemptions

Vermont income tax is based on Federal taxable income. If you are required to report the income on your Federal income tax return, it is also taxable in Vermont unless specifically exempted through Vermont law. If you claim Vermont as your state of domicile, you are considered a resident.

Vermont Exemptions for Military Pay
The following items are exempt from Vermont income tax:

• Residents - 32 VSA §5823(a)(2) - Military pay for full-time active duty with the armed services when the pay is earned outside of Vermont

• Non-Residents - 32 VSA §5823(a)(3) - Military pay for full-time active duty with the armed services

• Military income is not included when computing the Vermont tax on other Vermont income for non-residents as required by Public Law 180-189, Servicemembers Civil Relief Act effective tax year 2003

Click here to see PL 180-189 provisions

• $2,000 of military pay for unit training in Vermont for National Guard and U.S. Reserve personnel when the unit certifies the training was completed during the calendar year and the service member’s Federal adjusted gross income is less than $50,000 - 32 VSA §5823(a)(2) & 32VSA §5823(a)(3)

• Funds received through the federal armed forces educational loan repayment program under 10 U.S.C. chapters 109 and 1609, to the extent the funds are included in adjusted gross income of the taxpayer for the taxable year 32 VSA §5823(a)(3) & 32 VSA §5823(a)(3)

Earned Income Tax Credit
If you are eligible for Federal Earned Income Tax credit, you may also be eligible for the Vermont earned income tax credit. Recent Federal tax changes allow military personnel to elect to treat nontaxable combat pay as earned income.

IRS information on Federal Earned Income Tax Credit
Enter “EIC” in the search IRS site section

Combat Zone Duty
 Provisions of Section 7508 of the Federal Internal Revenue Code apply. The Vermont income tax return filing due date is extended for at least 180 days after

• the last day of qualifying combat zone service; or

• the last day of any continuous qualified hospitalization for injury received from service in the combat zone

In addition to extending the filing due date, payment of tax is also extended. No penalty or interest will be assessed on income tax due during this period. The extension applies to the filing for the military personnel’s spouse.

Military Personnel Eligible for Extension
Individuals called up for full-time active military duty as the result of the existence of a military conflict in an area designated as a combat zone by the President of the United States, regardless of whether such duty is performed within the combat zone. 32 VSA §5830d(1)

Individuals serving in an area treated by federal law in the same manner as if it were a combat zone. 32 VSA §5830d(2)

 For listing of combat zones, go to the IRS web site.
Enter “combat zone” in the search IRS site section

Taxpayer Information Line:
1.866.828.2865 (Toll-free in VT)
or 802.828.2865 (Local & Out-of-State)