The 2019 Vermont personal income tax season has opened. The IRS and the State of Vermont began accepting income tax returns on Jan. 28. This year, the federal and state due date for returns and requests for extensions is April 15. Many of the changes come as a result of Act 11, Vermont’s response to the 2017 federal Tax Cuts and Jobs Act (TCJA), which became law during the 2018 special legislative session and prevented a $30 million income tax increase.
According to the department, 84 percent of all returns filed in Vermont are e-filed. Electronic filing through a commercial software vendor or your tax preparer is a secure way to file federal and Vermont returns. On average, e-filers get their refunds about two weeks faster than filers using paper forms because returns transmitted electronically get to the department more quickly, with fewer errors, and are more easily processed. In the coming months, the department expects to issue about 240,000 refunds totaling $130 million.
“My staff continues to strike the balance of preventing fraud while striving to get refunds to Vermonters quickly,” said Tax Commissioner Kaj Samsom. “Last year, nearly 75 percent of e-filers got their refund within 30 days, and we hope to improve on that in 2019.”
E-filing through Free File is a great option for Vermont filers who qualify. In 2018, about 65 percent of Vermont taxpayers qualified for Free File, but only 3 percent of those eligible used the service. Visit the Free File webpage at tax.vermont.gov to see who qualifies. Those eligible should file both federal and Vermont income taxes through the links provided.
The following is an overview of what taxpayers should expect to see when filing for tax year 2018. More detail is available on the department’s website.
Vermont now starts with federal adjusted gross income (AGI) and has defined a new Vermont personal exemption of $4,150 for tax year 2018. The Vermont personal exemption functions exactly like the federal personal exemption did prior to the TCJA, which reduced the exemption to zero.
It is estimated that the TCJA reduced the percentage of Vermonters who will itemize federally from 30 percent to less than 10 percent. Act 11 removed Vermont’s recognition of itemized deductions so that all Vermonters will now use the new Vermont standard deduction. The Vermont standard deduction is similar to the federal standard deduction prior to the TCJA and includes additional deductions for filers age 65 and over and/or who are blind.
Filers with lower levels of income will see an increase in the Earned Income Tax Credit (EITC) and about half of those who receive taxable Social Security may be eligible for a new exemption. The EITC rises from 32 percent to 36 percent of the federal amount. The new Social Security exemption eliminates income tax entirely on Social Security benefits for those with a federal AGI below $45,000 if single or $60,000 if married filing jointly. A partial exemption phases out the benefits above those income levels.
Beginning with tax year 2018, Act 11 lowers marginal tax rates, and the number of rate brackets drops from five to four. The rate at the lowest end of taxable income is 3.35 percent, down from 3.55 percent, and the rate at the highest end is 8.75 percent, down from 8.95 percent.
Act 11 also created a charitable giving credit. The credit is 5 percent of up to $20,000 in charitable contributions to eligible organizations and can be taken by any Vermonter with a personal income tax liability, whether the filer itemizes or not. Organizations must be eligible under IRS rules, and filers should keep good records of donations to include receipts and other supporting documentation of their donations.
With the arrival of the 2019 tax season, the department offers the following tips to make filing go more smoothly:
Wait to receive Form W-2, Wage and Tax Statement, and notice of any other income on Form 1099 from employers before filing. Filing too early without the proper supporting documents will delay processing of the return. Vermont employers must provide their employees and the Department of Taxes with W-2s and 1099s for tax year 2018 by Jan. 31, 2019.
The department recommends updating federal Form W-4 and Vermont Form W-4VT. All Vermont wage earners should consider completing the new Form W-4VT to make sure the right amount of Vermont tax is withheld.