Gov. Phil Scott signed a tax credit package on Wednesday that is projected to provide $13.5 million in breaks for low-income workers, families, veterans and retirees.
“This exemption isn’t just about tax breaks, and as you can see by who’s here today, it’s not a partisan issue,” Scott said at the bill signing, surrounded by Republican, Democratic and independent lawmakers. “It’s an important recruitment tool.”
Supporters of S.51 argue the credits will keep more people in Vermont, particularly military retirees, who often begin a civilian career after leaving the uniformed services.
For years, Scott has pushed for a complete exemption of military pensions from state taxation. But skeptical Democratic leaders argued the tax break would unnecessarily benefit some high-income households and unfairly single out one deserving group over all others.
This legislative session, however, the concept drew bipartisan support among rank-and-file lawmakers in both chambers. And after a first version of the tax credit bill moved through the House without the military pension-focused measure, lawmakers later struck a compromise that significantly expanded veteran tax credits.
Wednesday, Scott was joined by military retirees and survivors to celebrate the law.
“This exemption will give a little lift to those who need it most,” said June Heston, the surviving spouse of Brig. Gen. Michael Heston, who served in the Vermont National Guard.
Effective retroactively, S.51 will expand tax breaks for all of 2025.
Breaking down the tax breaks
The law will exempt military pensions and military survivor benefits for households with adjusted gross incomes under $125,000, and create a partial exemption for those making less than $175,000.
Vermont remains among a minority of states that doesn’t fully exempt military pensions from income taxes.
S.51 also creates a $250 refundable tax credit for low-income veterans — not just those with military pensions — making less than $25,000, with a partial credit available for those making less than $30,000. According to the Joint Legislative Fiscal Office, 5,200 veterans are expected to be eligible.
While the veteran-related credits have drawn the most political attention, they make up less than a third of the cost of the overall package.
The largest change proposed is raising by one year the age threshold for Vermont’s child tax credit, to include families with 6-year-olds — a $4.5 million loss of revenue, according to the Joint Legislative Fiscal Office. Households making under $125,000 will receive $1,000 per eligible child.
Vermont’s earned income tax credit — linked to the federal initiative of the same name — would also expand under the law to include workers without children. The credit benefits lower-income working individuals and households.
Some retirees can expect new benefits as well. S.51 will raise the income thresholds at which Social Security is fully or partially tax exempt by $5,000 — up to $55,000 for single filers and $70,000 for married filers. Vermont is one of just nine states that tax Social Security, according to the joint fiscal office.
