Vermont legislators are working on a new bill that could phase out state taxes on Social Security benefits over the next eight years. The bill, H.74, has received bipartisan support from lawmakers who believe this change will help middle-income retirees who are struggling financially.
If passed, this bill would make Vermont a more affordable place to retire, as it is currently one of only nine states that still tax Social Security benefits. Supporters argue that reducing or eliminating this tax will allow seniors to keep more of their hard-earned money and continue living comfortably in the state.
What’s in the H.74 Bill?
The proposed bill doesn’t eliminate Social Security taxes immediately but instead introduces a step-by-step reduction plan to ensure a smooth transition.
- Year 1: The income exemption threshold increases by $15,000 for single filers and married couples.
- Year 2: The exemption increases by $12,000.
- Year 3 and beyond: The exemption rises by $10,000 each year until the full exemption is in place by 2034.
Representative Jim Harrison, one of the bill’s sponsors, acknowledges that while an immediate repeal would be ideal, lawmakers must balance financial responsibility with the needs of retirees.
“In an ideal world, we’d repeal it tomorrow and not have it taxed, but we’re being fiscally responsible in terms of our approach,” said Harrison.
Why Is This Bill Important?
For many older Vermonters, Social Security is their primary source of income. Rising costs of living, healthcare expenses, and property taxes have made it harder for seniors to make ends meet.
Mary Hayden, Executive Director of the Vermont Association of Area Agencies on Aging, supports the bill and believes it could make Vermont a more attractive place to retire.
“We see this bill as one of the important efforts to make Vermont more affordable for older people and a more affordable state to grow old in,” said Hayden.
She also pointed out that if seniors have more disposable income, they will spend more locally, which could help Vermont’s economy grow.
Aging in Place – What This Means for Retirees
One of the biggest concerns for retirees in Vermont is whether they can afford to stay in their homes. Many seniors own property and rely on fixed incomes, making even small tax burdens a major financial strain.
Representative Daniel Noyes, another sponsor of the bill, emphasized the importance of helping seniors stay in Vermont.
“Allowing people to keep more of their Social Security will help them be able to age in place here in Vermont,” Noyes said.
This means that instead of moving to states with lower taxes, Vermont retirees could stay in their communities, close to their families and support systems.
Governor Scott’s Alternative Proposal
Vermont Governor Phil Scott also proposed reducing Social Security taxes in his 2026 budget plan, but his approach is less aggressive than H.74.
Scott’s budget suggests raising the exemption threshold by only $5,000—far lower than the $15,000 increase proposed in H.74. Lawmakers supporting H.74 argue that this doesn’t go far enough to help retirees struggling with inflation and rising costs.
For now, the bill has been referred to the House Ways and Means Committee, where it will be reviewed before moving forward.
What Happens Next?
Before becoming law, H.74 must pass multiple hurdles:
- Review by the House Ways and Means Committee – Lawmakers will discuss whether the bill is financially feasible.
- Debate and vote in the Vermont House of Representatives – If passed, the bill moves to the Senate.
- Senate approval – If the Senate agrees, the bill will head to Governor Scott’s desk.
- Governor’s signature or veto – Scott can sign the bill into law or reject it. If vetoed, lawmakers may try to override it.
If Passed, When Will the Changes Start?
If H.74 is approved, the first tax relief changes will begin in 2026, with gradual increases in the exemption threshold each year until full elimination in 2034.
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