KEY TAKEAWAYS
- Vermont’s Act 71 (2025) significantly expanded military retirement benefits: full exemption for taxpayers with AGI at or below $125,000, with partial relief up to $175,000 AGI. The annual exclusion cap also rose to $40,000 starting in 2025 (up from $30,000).
- Act 71 also established a new Vermont Veteran Tax Credit — contact the Vermont Department of Taxes for current credit amounts and eligibility.
- Veterans with a 100% permanent and total (P&T) disability rating qualify for a full property tax exemption on their primary residence (up to 5 acres), retroactive to 2022.
- Qualifying disabled veterans and surviving spouses are exempt from local taxes on one owned vehicle.
- VA disability compensation remains tax-free at both federal and state levels — Vermont’s income tax changes do not affect disability compensation.
- Income Tax Benefits and Act 71
- Property Tax Exemption
- Vehicle Tax Exemption
- Education Benefits
- Employment Preference
- Burial Benefits
- VA Facilities in Vermont
- Vermont Office of Veterans Affairs
- Frequently Asked Questions
Vermont recently made significant improvements to its military retirement tax treatment with Act 71, signed in June 2025. Combined with a full property tax exemption for P&T veterans, a new Veteran Tax Credit, and vehicle tax relief, the state’s benefit package is stronger in 2026 than it has been at any point in recent years. This guide covers the complete picture of Vermont state-level veteran benefits for 2026.
Income Tax Benefits and Act 71
Vermont has a state income tax, and historically provided only limited relief for military retirement pay. Act 71, signed into law in June 2025, substantially changed that picture:
- Full exemption (AGI ≤ $125,000): Military retirees with Adjusted Gross Income at or below $125,000 may fully exempt military retirement pay and survivor benefit income from Vermont state income tax
- Partial exemption (AGI $125,001–$175,000): A partial exemption is available on a sliding scale for taxpayers with AGI between $125,001 and $175,000
- Annual exclusion cap: For taxpayers above the AGI thresholds or otherwise ineligible for the full exemption, the annual military retirement income exclusion is now $40,000 (up from $30,000 in 2024)
- Vermont Veteran Tax Credit: Act 71 established a new tax credit for eligible veterans. Contact the Vermont Department of Taxes for current credit amounts and eligibility requirements
- VA disability compensation: Tax-free at both federal and state levels — these changes do not affect disability compensation, which was already excluded from taxable income
Vermont’s top marginal income tax rate is 8.75% — for retirees with income fully exempt under Act 71, this represents potentially thousands of dollars in annual state tax savings compared to prior law.
Property Tax Exemption
Vermont provides a full property tax exemption for veterans with a 100% permanent and total (P&T) service-connected disability rating:
- Coverage: Full exemption from property taxes on the veteran’s primary residence and up to 5 acres
- Retroactive provision: The exemption is retroactive to 2022 for qualifying veterans — veterans who became eligible in or after 2022 may be able to claim relief for prior tax years
- Surviving spouse: The exemption may extend to surviving spouses who remain in the home; contact your town assessor for current provisions
- Administration: Vermont property tax is administered at the municipal level — contact your town assessor’s office to apply and confirm local procedures
Vermont also provides a standard veteran property tax exemption for honorably discharged wartime veterans: a $10,000 reduction in the assessed value of the veteran’s property. This broader exemption is available to veterans who don’t meet the P&T threshold and is applied through local municipal assessors.
Vehicle Tax Exemption
Qualifying disabled veterans and their surviving spouses are exempt from local taxes on one owned vehicle (not leased). This applies to the local property tax assessed on vehicles in Vermont. Contact your municipality’s tax office or the Vermont Department of Motor Vehicles for current eligibility requirements and application procedures.
Education Benefits
- In-state tuition — GI Bill users: Veterans using GI Bill benefits at Vermont public colleges receive in-state tuition rates regardless of residency, provided they enroll within three years of discharge (federal Choice Act)
- Vermont National Guard Education Benefits: Vermont National Guard members may qualify for state tuition assistance at Vermont public institutions. Contact the Vermont National Guard Education Services Office for current program details and funding availability
- Yellow Ribbon participation: Several Vermont institutions participate in the Yellow Ribbon Program to supplement Post-9/11 GI Bill coverage. Search the VA’s Yellow Ribbon school finder for current Vermont participants
Employment Preference
Vermont provides veterans’ preference in state employment for honorably discharged veterans. Veterans and certain surviving spouses receive preference points on competitive examinations. Contact the Vermont Department of Human Resources for current preference rules and application procedures.
Military spouse professional license reciprocity: Vermont has enacted provisions to expedite professional license recognition for military spouses relocating to the state due to military orders. Contact the relevant licensing board for the specific profession involved.
Burial Benefits
Vermont veterans are served by the Vermont Veterans Memorial Cemetery in Randolph Center, which provides burial at no cost for eligible veterans and qualifying dependents. Full military funeral honors are available. Contact the Vermont Office of Veterans Affairs to establish eligibility in advance of need.
Federal headstones and markers are available at no cost for eligible veterans buried in private cemeteries through the National Cemetery Administration.
VA Facilities in Vermont
Vermont is served by the White River Junction VA Medical Center, which provides inpatient and outpatient care. Community Based Outpatient Clinics serve veterans in Burlington, Bennington, Brattleboro, and Rutland, improving access across the state’s geographically spread population.
Find the nearest VA facility using the VA facility locator.
Vermont Office of Veterans Affairs
The Vermont Office of Veterans Affairs (OVA) provides claims assistance, benefit counseling, and connection to VA resources for Vermont veterans. County Veterans Service Officers are available statewide to help with claims, appeals, and benefit navigation at no cost.
Frequently Asked Questions
Act 71, signed in June 2025, significantly expanded Vermont’s military retirement income relief. Retirees with AGI at or below $125,000 can now fully exempt military retirement pay and survivor benefit income from state income tax. A partial exemption applies up to $175,000 AGI. The annual exclusion cap for those outside those thresholds increased to $40,000 (from $30,000). The law also created a new Vermont Veteran Tax Credit — contact the Vermont Department of Taxes for current credit specifics.
Vermont offers a full property tax exemption on the primary residence (up to 5 acres) for veterans with a 100% P&T service-connected disability rating, retroactive to 2022. A standard $10,000 assessed-value reduction is also available to honorably discharged wartime veterans regardless of disability rating. Both programs are administered through local municipal tax assessors.
No. VA disability compensation is tax-free at both the federal and state levels. Vermont’s Act 71 income tax changes apply to military retirement pay and survivor benefits — not to disability compensation, which was already excluded.
This article is provided by USMilitary.org, an independent educational resource. We are not affiliated with the Department of Defense, VA, or any government agency. Benefits and eligibility rules may change — verify current information with the Vermont Office of Veterans Affairs or your local VSO.