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S.17 1
Introduced by Senators Collamore, Beck, Brennan, Brock, Chittenden, 2
Douglass, Harrison, Hart, Hashim, Heffernan, Ingalls, Lyons, 3
Major, Mattos, Norris, Plunkett, Ram Hinsdale, Weeks, 4
Westman, White and Williams 5
Referred to Committee on 6
Date: 7
Subject: Taxation; income tax; military retirement; survivor benefit income; 8
exemption 9
Statement of purpose of bill as introduced: This bill proposes to exempt 10
military retirement and survivor benefit income from Vermont income tax. 11
An act relating to exempting military retirement and survivor benefit 12
income from Vermont income tax 13
It is hereby enacted by the General Assembly of the State of Vermont: 14
Sec. 1. 32 V.S.A. § 5811 is amended to read: 15
§ 5811. DEFINITIONS 16
As used in this chapter unless the context requires otherwise: 17
* * * 18
(21) “Taxable income” means, in the case of an individual, federal 19
adjusted gross income determined without regard to 26 U.S.C. § 168(k) and: 20 BILL AS INTRODUCED S.17
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* * * 1
(B) decreased by the following items of income (to the extent such 2
income is included in federal adjusted gross income): 3
(i) income from U.S. government obligations; 4
(ii) with respect to adjusted net capital gain income as defined in 5
26 U.S.C. § 1(h) reduced by the total amount of any qualified dividend 6
income: either the first $5,000.00 of such adjusted net capital gain income or 7
40 percent of adjusted net capital gain income from the sale of assets held by 8
the taxpayer for more than three years, except not adjusted net capital gain 9
income from: 10
(I) the sale of any real estate or portion of real estate used by 11
the taxpayer as a primary or nonprimary residence; or 12
(II) the sale of depreciable personal property other than farm 13
property and standing timber; or stocks or bonds publicly traded or traded on 14
an exchange, or any other financial instruments; regardless of whether sold by 15
an individual or business; and provided that the total amount of decrease under 16
this subdivision (21)(B)(ii) shall not exceed 40 percent of federal taxable 17
income or $350,000.00, whichever is less; 18
(iii) recapture of State and local income tax deductions not taken 19
against Vermont income tax; 20 BILL AS INTRODUCED S.17
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(iv) the portion of certain retirement income and federally taxable 1
benefits received under the federal Social Security Act that is required to be 2
excluded under section 5830e of this chapter; 3
(v) the amount of any federal deduction or credit that the taxpayer 4
would have been allowed for the cultivation, testing, processing, or sale of 5
cannabis or cannabis products as authorized under 7 V.S.A. chapter 33 or 37, 6
but for 26 U.S.C. § 280E; and 7
(vi) the amount of interest paid by a qualified resident taxpayer 8
during the taxable year on a qualified education loan for the costs of attendance 9
at an eligible educational institution; and 10
(vii) U.S. military retirement income and U.S. military survivor 11
benefit income received by the surviving spouse or dependent of the deceased 12
service member; and 13
* * * 14
Sec. 2. 32 V.S.A. § 5830e is amended to read: 15
§ 5830e. RETIREMENT INCOME; SOCIAL SECURITY INCOME 16
* * * 17
(c) Other contributory retirement systems; earnings not covered by Social 18
Security. Other retirement income, except U.S. military retirement income 19
pursuant to subsection (d) of this section, received by a taxpayer of this State 20
shall be excluded pursuant to subsection (b) of this section as though the 21 BILL AS INTRODUCED S.17
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income were received from the Civil Service Retirement System and shall be 1
subject to the limitations under subsection (e) of this section, provided that: 2
(1) the income is received from a contributory annuity, pension, 3
endowment, or retirement system of: 4
(A) the U.S. government or a political subdivision or instrumentality 5
of the U.S. government; 6
(B) this State or a political subdivision or instrumentality of this 7
State; or 8
(C) another state or a political subdivision or instrumentality of 9
another state; and 10
(2) the contributory system from which the income is received was 11
based on earnings that were not covered by the Social Security Act. 12
(d) U.S. military retirement income. U.S. military retirement income 13
received by a taxpayer of this State shall be excluded pursuant to subsection 14
(b) of this section as though the income were received from the Civil Service 15
Retirement System and shall be subject to the limitations under subsection (e) 16
of this section. [Repealed.] 17
(e) Requirement to elect one exclusion. A taxpayer of this State who is 18
eligible during the taxable year for the Social Security income exclusion under 19
subsection (a) of this section and any one or both of the exclusions under 20
subsections (b)–(d) and (c) of this section shall elect either one of the 21 BILL AS INTRODUCED S.17
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exclusions for which the taxpayer is eligible under subsections (b)–(d) and (c) 1
of this section or the Social Security income exclusion under subsection (a) of 2
this section, but not both, for the taxable year. A taxpayer of this State who is 3
eligible during the taxable year for more than one of the both exclusions under 4
subsections (b)–(d) and (c) of this section shall elect only one of the exclusions 5
for which the taxpayer is eligible for the taxable year. 6
Sec. 3. EFFECTIVE DATES 7
(a) This section shall take effect on passage. 8
(b) Notwithstanding 1 V.S.A. § 214, Secs. 1 and 2 shall take effect 9
retroactively on January 1, 2026 and apply to taxable years on and after 10
January 1, 2026. 11