By Xander Landen/VTDigger
About 40,000 Vermonters who receive Social Security benefits will see more money in their pockets this year, after Gov. Phil Scott and lawmakers moved to slash the state tax on the benefits for low- and moderate-income earners.
New tax exemptions for Social Security — which passed into law at the conclusion of this year’s legislative session — will shield many from paying taxes on their Social Security income.
Single Vermonters with an adjusted gross income of less than $45,000 a year and couples with adjusted gross income of less than $60,000 will no longer see the state tax on the dollars they earn from Social Security.
Single filers who make between $45,000-$55,000 and married joint filers making between $60,000-$70,000 will see partial tax exemptions.
“This marginal bracket, folks that are really living on their Social Security income and not much else, this money makes a huge difference in their daily lives,” AARP Vermont State President Greg Marchildon said.
On average, Vermonters will see savings of about $125 a year, according to Kaj Samsom, the state’s tax commissioner.
But for some, savings could approach $800, Marchildon said.
Marchildon estimates that across the board, Vermonters will see between $5 million and $8 million in savings because of the new exemptions. And he points out that while that money will no longer be filling state coffers, beneficiaries will likely be spending the additional income in their home communities.
“It really is a bunch of money, and a bunch of money that they’re going to be able to put back in their own pockets so they can spend it here in Vermont,” he said.
Until the governor and the Legislature acted this year, Vermont was one of only a handful of states that didn’t offer any tax exemptions for Social Security income.
Thirty seven states don’t tax the benefits at all, while 13 tax them to some degree, according Marchildon. Vermont was one of four states that didn’t offer any Social Security exemptions.
At a press conference last week, Scott touted the newly minted exemptions, which he hopes will make it easier for retirees to stay in Vermont.
“Many of them leave the state and those who stay are burdened with the increasing cost of living while on fixed incomes,” Scott said.
“They deserve as much as anyone else to live with the dignity of a retirement they earned through a lifetime of work,” he said.
Samsom said the exemptions not only apply to retirement benefits, but all types of Social Security income including disability and survivor benefits.
“This really does help with tax competitiveness, but also is an aggressive proposal that really helps Vermont’s vulnerable populations,” Samsom said. “It helps folks that are struggling on fixed incomes put more money in their pocket.”
Scott pitched tax exemptions for Social Security benefits in his budget address in January.
House lawmakers swiftly took up the proposal, folding it into their tax bill and proposal to change the state’s income tax system to shield Vermonters from an inadvertent $30 million tax hike brought on by federal reforms.
While Scott had proposed phasing the exemptions in over three years, lawmakers moved to have them take full effect this year.
Marchildon said the exemptions taking hold this year are a great first step. But the AARP’s goal, he said, is to work with state leaders to eventually eliminate all state taxes on Social Security.
“We want to make sure that we’re doing everything we can to continue to make sure Vermont is a good place for people to retire,” he said.