A year after Compass looked at nine fixes, Vermont still limits pension relief by income and caps disabled veterans’ property tax break.

by Compass Vermont

Ceremonies and celebrations honoring our Vermont veterans are taking place all over the Green Mountain State on Wednesday, November 11, with one caveat.

Consider two military retirees on opposite sides of the Connecticut River. If their household income tops $125,000, the one in Brattleboro owes Vermont income tax on some or all of a military pension. The one in Hinsdale, New Hampshire, collects the same pension free of state income tax at any income.

Adjutant General Hank Harder, who leads the Vermont National Guard, put the stakes plainly in August. “Vermont is competing with other states for this talent,” he said. He noted that Vermont is the only New England state that still taxes military retirement pay.

For a disabled veteran who owns a home, the dividing line can be the next town over. Vermont lets each town decide how much to exempt from the property tax bill, so two veterans with the same disability can get different breaks.

Last Veterans Day, Compass identified two priorities:

• exempting military retirement pay at every income, and
• fully exempting the home of a veteran with a permanent and total service-connected disability.

Vermont enacted neither in 2026.

In May, WalletHub ranked Vermont 50th of 51 as a place for military retirees, counting the states and Washington, D.C. Only Oregon ranked lower, and New Hampshire ranked fourth. That index also weighs jobs, health care and quality of life. The first year of Vermont tax returns gives a more direct measure of what lawmakers changed.

What the Pension Break Delivered

Before Act 71 of 2025, a military retiree could exempt no more than $10,000 of a pension, and only with income of $50,000 or less for a single filer or $65,000 for a married couple.

The new law, which Compass covered when it was signed, works this way. Income here means adjusted gross income, the total income figure on the federal tax return:

• $125,000 or less: the entire pension or survivor benefit is exempt from Vermont income tax.
• $150,000: half is exempt.
• $175,000 or more: none is exempt.

The same limits apply whether a retiree files single or joint. On a joint return, a spouse’s paycheck counts toward the total.

By August, the expanded exemption had returned an additional $1.9 million to more than 2,400 military retirees and survivors. That’s about three-quarters of the $2.5 million a year the Joint Fiscal Office had projected, with late returns still coming in.

A new $250 credit for low-income veterans had paid about $439,000 to 1,888 veterans. The Joint Fiscal Office had estimated that about 5,200 veterans would qualify and the credit would cost $1.4 million a year. So by August, it had reached about a third of the eligible veterans and paid out 31 percent of the projected cost.

Correction to our 2025 coverage: Compass’s Nov. 11, 2025 story said military retirees had to choose between the military and Social Security exemptions. Act 71 had already removed that requirement for tax year 2025, and eligible filers may claim both.

Why Lawmakers Drew the Line

Nationally, 37 states don’t tax military retirement pay at all. Nine have no income tax, and 28 exempt the pay fully.

This year, eight senators from both parties sponsored S.308 to remove Vermont’s income limit for retirees and survivors. They included Republican Randy Brock and Democrat Kesha Ram Hinsdale. Senate Finance heard Brock present the bill on Jan. 30. It never got a vote, and no fiscal note was published.

Rep. Emilie Kornheiser, the Brattleboro Democrat who chaired House Ways and Means, defended the cap in 2025. She told Vermont Public that extending the break above $175,000 would erode the progressivity of the state’s tax code, meaning the principle that people who earn more pay a larger share.

Sen. Ann Cummings, who chaired Senate Finance, had long opposed singling out military pensions as the only tax-exempt occupation.

The question came back in January, when Rep. Conor Casey of Montpelier proposed the same break for retired police, firefighters and EMTs. Kornheiser said lawmakers had worried about prioritizing “one group’s value and valor over others,” naming teachers and firefighters. She added that every revenue cut leaves less money for public safety salaries.

Supporters frame the break as a way to recruit workers. Gov. Phil Scott called it “an important recruitment tool” when he signed Act 71. He pointed out that many service members retire young, with whole civilian careers ahead of them.

The Joint Fiscal Office put a price on both approaches. In January 2025, it estimated a full exemption at $3.9 million a year under the law then in effect. The capped version lawmakers passed was estimated at $2.5 million.

What a Disabled Homeowner Saves

Vermont’s property tax exemption covers veterans the VA rates at least 50 percent disabled. It takes $10,000 off the home’s appraised value. That’s a reduction in the value being taxed, not $10,000 off the tax bill.

Here’s what that means in dollars. Take a $300,000 home in a town that uses the $10,000 minimum, at an illustrative combined tax rate of 2 percent. The bill is $6,000. The exemption saves $200 of it, so the veteran still owes $5,800 before any other credits. A veteran rated 100 percent and permanently disabled gets the same $200 as one rated 50 percent.

Town voters can raise the exemption to as much as $40,000 of appraised value. When they do, the town, not the state, absorbs the cost of the increase.

Compass’s 2025 report found Florida, Texas, Virginia, South Carolina and Maryland among the states that fully exempt the primary home of a veteran with a permanent and total service-connected disability.

What Passed, and What Stalled

Two changes took effect July 1 under Act 88:

• Military spouses: spouses of people currently serving in the armed forces get five extra points on state civil-service exams, the same boost veterans get.
• Parking: vehicles with disabled-veteran plates from any state now park free at municipal meters in Vermont.

H.103 would have stopped unaccredited consultants from charging veterans for help filing VA benefit claims. A House committee took it up in February, and it never got a vote. Federal law generally bars charging for help with a first claim. But the Congressional Research Service reported in July that the VA has little power to act against people outside its accreditation system.

Vermont already offers that help free. The state’s six Veterans Service Officers recovered $10.1 million in federal benefits for veterans in state fiscal 2025, up from $7.9 million the year before. The positions cost about $687,000 in state money, so they bring in nearly $15 in federal benefits for every state dollar.

In April, Essex High School senior Jacob Law asked senators to close every Vermont school on Veterans Day starting in 2027–28. His mother served more than two decades in the Air National Guard. He noted that Maine, Massachusetts, New Hampshire and New York already give students the day off. The bill he testified on became Act 160 without that change.

What Comes Next

In August, Scott said he would put forward several major proposals to ease Vermonters’ tax burden in the next session. He didn’t mention either veterans’ exemption. When the new Legislature convenes in January, the first thing to watch is whether anyone introduces a bill to lift either limit.

For Veterans and Their Families

Here’s what’s on the books, so you can decide what applies to you.

• Military retirement and survivor benefits.
  • Fully exempt from Vermont income tax at $125,000 of adjusted gross income or less, and partly exempt up to $175,000.
  • Claim it on Schedule IN-112 with your Vermont return.
  • You can take the Social Security exemption too if you qualify.
  • Details are on the Tax Department’s military page.
• $250 Vermont Veteran Tax Credit.
  • Open to Vermont residents with a discharge record from the uniformed services.
  • Full credit at $25,000 of adjusted gross income or less; partial up to $30,000.
  • It’s refundable, so you get it even if you owe no tax.
  • Married couples where both spouses are veterans may each qualify.
  • If you missed it, call Taxpayer Services at 802-828-2865 about filing or amending a return.
• Disabled veterans’ property tax exemption.
  • Homeowners only, on the home you live in.
  • You qualify if the VA rates you 50 percent disabled or more, you receive a VA disability pension, or you have a permanent medical military retirement. Surviving spouses who haven’t remarried also qualify.
  • File with the Office of Veterans Affairs before May 1, with a statement from the VA or the Military Department showing your benefits.
  • With a permanent disability, you file once, and the exemption stays until the home changes hands.
  • Ask your town listers whether your town has raised the exemption above $10,000.
• Free help with VA claims. The state’s Veterans Service Officers help at no cost; reach them through the Office of Veterans Affairs.