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1H.43
2 Introduced by Representatives Canfield of Fair Haven, Hango of Berkshire,
3Morgan, M. of Milton, Morrissey of Bennington, Austin of
4Colchester, Bailey of Hyde Park, Bartley of Fairfax, Birong of
5Vergennes, Bosch of Clarendon, Boutin of Barre City, Boyden
6of Cambridge, Branagan of Georgia, Burditt of West Rutland,
7Burtt of Cabot, Casey of Montpelier, Christie of Hartford, Cina
8of Burlington, Coffin of Cavendish, Corcoran of Bennington,
9Demar of Enosburgh, Dickinson of St. Albans Town,
10Dobrovich of Williamstown, Dolgin of St. Johnsbury, Donahue
11of Northfield, Galfetti of Barre Town, Goslant of Northfield,
12Greer of Bennington, Gregoire of Fairfield, Harrison of
13Chittenden, Harvey of Castleton, Higley of Lowell, Hooper of
14Randolph, Hooper of Burlington, Howard of Rutland City,
15Howland of Rutland Town, Hunter of Manchester, Kascenska
16of Burke, Keyser of Rutland City, Krasnow of South
17Burlington, Labor of Morgan, Laroche of Franklin, Lipsky of
18Stowe, Luneau of St. Albans City, Maguire of Rutland City,
19Malay of Pittsford, Marcotte of Coventry, McFaun of Barre
20Town, Micklus of Milton, Minier of South Burlington, Morgan,
21L. of Milton, Morris of Springfield, Nelson of Derby, Nielsen of
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1Brandon, North of Ferrisburgh, Noyes of Wolcott, Ode of
2Burlington, Oliver of Sheldon, Page of Newport City, Parsons
3of Newbury, Pinsonault of Dorset, Powers of Waterford,
4Priestley of Bradford, Pritchard of Pawlet, Quimby of Lyndon,
5Sibilia of Dover, Southworth of Walden, Stone of Burlington,
6Sweeney of Shelburne, Tagliavia of Corinth, Taylor of Milton,
7Toof of St. Albans Town, Walker of Swanton, Wells of
8Brownington, White of Waitsfield, and Winter of Ludlow
9 Referred to Committee on
10 Date:
11 Subject: Taxation; income tax; military retirement; survivor benefit income;
12exemption
13 Statement of purpose of bill as introduced: This bill proposes to exempt
14 military retirement and survivor benefit income from Vermont income tax.
15   An act relating to exempting military retirement and survivor benefit
16   income from Vermont income tax
17 It is hereby enacted by the General Assembly of the State of Vermont:
18 Sec. 1. 32 V.S.A. § 5811 is amended to read:
19 § 5811. DEFINITIONS
20   As used in this chapter unless the context requires otherwise:
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1***
2(21) “Taxable income” means, in the case of an individual, federal
3 adjusted gross income determined without regard to 26 U.S.C. § 168(k) and:
4***
5(B) decreased by the following items of income (to the extent such
6 income is included in federal adjusted gross income):
7(i) income from U.S. government obligations;
8(ii) with respect to adjusted net capital gain income as defined in
9 26 U.S.C. § 1(h) reduced by the total amount of any qualified dividend
10 income: either the first $5,000.00 of such adjusted net capital gain income or
11 40 percent of adjusted net capital gain income from the sale of assets held by
12 the taxpayer for more than three years, except not adjusted net capital gain
13 income from:
14(I) the sale of any real estate or portion of real estate used by
15 the taxpayer as a primary or nonprimary residence; or
16(II) the sale of depreciable personal property other than farm
17 property and standing timber; or stocks or bonds publicly traded or traded on
18 an exchange, or any other financial instruments; regardless of whether sold by
19 an individual or business; and provided that the total amount of decrease under
20 this subdivision (21)(B)(ii) shall not exceed 40 percent of federal taxable
21 income or $350,000.00, whichever is less;
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1(iii) recapture of State and local income tax deductions not taken
2 against Vermont income tax;
3(iv) the portion of certain retirement income and federally taxable
4 benefits received under the federal Social Security Act that is required to be
5 excluded under section 5830e of this chapter;
6(v) the amount of any federal deduction or credit that the taxpayer
7 would have been allowed for the cultivation, testing, processing, or sale of
8 cannabis or cannabis products as authorized under 7 V.S.A. chapter 33 or 37,
9 but for 26 U.S.C. § 280E; and
10(vi) the amount of interest paid by a qualified resident taxpayer
11 during the taxable year on a qualified education loan for the costs of attendance
12 at an eligible educational institution; and
13(vii) U.S. military retirement income and U.S. military survivor
14 benefit income received by the surviving spouse or dependent of the deceased
15 service member; and
16***
17 Sec. 2. 32 V.S.A. § 5830e is amended to read:
18 § 5830e. RETIREMENT INCOME; SOCIAL SECURITY INCOME
19***
20    (c) Other contributory retirement systems; earnings not covered by Social
21 Security. Other retirement income, except U.S. military retirement income
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1 pursuant to subsection (d) of this section, received by a taxpayer of this State
2 shall be excluded pursuant to subsection (b) of this section as though the
3 income were received from the Civil Service Retirement System and shall be
4 subject to the limitations under subsection (e) of this section, provided that:
5(1) the income is received from a contributory annuity, pension,
6 endowment, or retirement system of:
7(A) the U.S. government or a political subdivision or instrumentality
8 of the U.S. government;
9(B) this State or a political subdivision or instrumentality of this
10 State; or
11(C) another state or a political subdivision or instrumentality of
12 another state; and
13(2) the contributory system from which the income is received was
14 based on earnings that were not covered by the Social Security Act.
15    (d) U.S. military retirement income. U.S. military retirement income
16 received by a taxpayer of this State shall be excluded pursuant to subsection
17 (b) of this section as though the income were received from the Civil Service
18 Retirement System and shall be subject to the limitations under subsection (e)
19 of this section. [Repealed.]
20    (e) Requirement to elect one exclusion. A taxpayer of this State who is
21 eligible during the taxable year for the Social Security income exclusion under
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1 subsection (a) of this section and any one or both of the exclusions under
2 subsections (b)–(d) and (c) of this section shall elect either one of the
3 exclusions for which the taxpayer is eligible under subsections (b) –(d) and (c)
4 of this section or the Social Security income exclusion under subsection (a) of
5 this section, but not both, for the taxable year. A taxpayer of this State who is
6 eligible during the taxable year for more than one of the both exclusions under
7 subsections (b) –(d) and (c) of this section shall elect only one of the
8 exclusions for which the taxpayer is eligible for the taxable year.
9 Sec. 3. EFFECTIVE DATES
10    (a) This section shall take effect on passage.
11    (b) Notwithstanding 1 V.S.A. § 214, Secs. 1 and 2 shall take effect
12 retroactively on January 1, 2026 and apply to taxable years on and after
13 January 1, 2026.
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