As the leaves fall and the first frost arrives, the conversations among local seniors start to shift. They talk about firewood, ski resort openings, and, of course, next year's taxes.

Recently, at a Korean community meeting, someone asked whether Social Security benefits are subject to state tax. A relative living in another state mentioned that there is no such tax there, so why is it applicable here?

So, I did some research. To put it simply, Vermont is indeed one of the eight states that can impose state income tax on Social Security benefits as of 2026.

The other seven states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, and Utah. The remaining 42 states and Washington D.C. do not impose a separate state tax on Social Security benefits.

This list has gradually decreased over the years. West Virginia has been removed from the list as it completed a phased elimination, and prior to that, Kansas, Missouri, and Nebraska were the first to drop off.

However, not all retirees living in Vermont pay taxes. Many people misunderstand this.

Vermont has an income threshold, and if your income is below that, you are fully exempt from state tax on Social Security benefits. This threshold has been raised twice recently.

In 2022, Act 138 raised the threshold for single filers to $50,000 and for married couples filing jointly to $65,000. Then, on June 25, 2025, Governor Phil Scott signed Act 71, which raised it again by $5,000.

According to the Vermont Department of Taxes, the threshold effective for the 2025 tax year is as follows: single, individual filers, and heads of household are fully exempt up to an adjusted gross income of $55,000.

If you exceed $55,000, the exemption gradually decreases until you reach $65,000. There is no exemption for incomes above $65,000.

For married couples filing jointly, the exemption is fully available up to $70,000. If you exceed $70,000, there is a partial exemption until you reach $80,000, after which the exemption disappears.

The calculation for partial exemption is simpler than you might think. You subtract your adjusted gross income from the upper limit and divide that amount by $10,000, then reduce the taxable Social Security benefits by that proportion.

For example, if a single filer has an adjusted gross income of $60,000, the difference from the upper limit of $65,000 is $5,000. Therefore, half of the taxable Social Security benefits would be exempt.

One important point to note is that this exemption only applies to the portion of Social Security benefits that is taxable at the federal level and does not extend to other income.

This means that IRA withdrawals, pensions, and interest income are still subject to state tax. Those with diverse income sources after retirement should pay close attention to this difference.

Act 71 also includes changes for military retirees. If your adjusted gross income is below $125,000, military retirement pay and survivor benefits are fully exempt, regardless of filing type.

Previously, you could only choose one exemption between military retirement and Social Security, but now you can qualify for both if eligible. This is quite good news for Korean-American seniors who are veterans.

Was there any discussion about completely eliminating the Social Security tax? In 2025, a bill (H.74) was introduced to fully exempt Social Security benefits over eight years, but it did not pass the committee.

In the 2026 session, bills and amendments aimed at expanding exemptions were introduced. However, in March, the House Ways and Means Committee opposed the expansion amendment, citing that many beneficiaries were already fully exempt due to last year's changes.

From my research, I did not find any records indicating that the thresholds have changed again this year. Therefore, I recommend checking the latest figures in the IN-112 notice from the Department of Taxes when filing next spring.

The highest state income tax rate in Vermont is 8.75%, which is relatively high nationally. Those just above the exemption threshold may feel a significant impact.

Personally, I think this system is not bad. It protects retirees with limited income while collecting taxes from more affluent households.

However, it is unfortunate that the threshold does not automatically adjust with inflation. Social Security benefits increase annually with cost-of-living adjustments, but if the threshold remains static, you could quickly find yourself outside the exemption range.

So, I would consider adjusting the timing of IRA withdrawals. Instead of taking a lump sum in one year, spreading it out could help keep your adjusted gross income below the threshold.

Of course, federal taxes and Medicare premiums are also intertwined, making it difficult to make decisions based on just one factor. The outcomes can vary significantly depending on individual circumstances, so be sure to consult a tax professional.

Vermont is a small state, so finding a Korean tax advisor can be challenging. However, there are resources like the AARP free tax assistance program that support retirees, so it's a good idea to make an appointment ahead of the season for peace of mind.

Even though winters are long and shoveling snow can be tough, many people enjoy the relaxed pace and quiet mountains of this area. To maintain that lifestyle, it's wise to keep track of a few numbers in advance.

This winter, I encourage you to pull out last year's tax return and check where your adjusted gross income stands. You might find that you are still within the exemption range.