Social Security plan would eliminate state tax for 35,000 Vermonters

By Anne Galloway, VTDigger.org

Aplan to exempt Social Security benefits from the state income tax would eliminate the tax for about 35,000 retirees, according to Scott administration officials. That represents about 23 percent of people in Vermont who receive Social Security payments.

Any single retiree who has an adjusted gross income of $45,000 or less would no longer pay state income taxes, according to Kaj Samsom, the commissioner of the Department of Taxes. The tax break phases out between $45,000 and $55,000.

Couples with adjusted gross incomes of $65,000 or less would also be exempted from the state income tax.

“[The plan] mitigates or eliminates the tax for approximately 35,000 or a little less than half those currently paying Vermont state tax,” Samsom told the House Ways and Means Committee.

The tax exemption would be phased in over three years for Social Security beneficiaries. In year one, the cost to the state would be $1.9 million in year one, $4 million in year two and $6.1 million in year three, at which time the cost would be annualized.

Rep. George Till, D-Jericho, said he was “surprised it only costs $6.1 million.”

A previous proposal from Rep. Kurt Wright, R-Burlington, which gave everyone on Social Security a tax exemption, cost $30 million.

About 150,000 Vermonters receive benefits. Of that number, 78,000 pay state taxes on a portion of their Social Security payments, Samsom said.

In his budget speech, Gov. Phil Scott said too many native born Vermonters are retiring out of state. About 26,000 Vermonters live in Florida. But it’s “not just the weather,” he said, because about 27,000 Vermonters live in New Hampshire.

“Many folks on fixed incomes what to stay here in Vermont and can’t afford that second home elsewhere,” Scott said. “They deserve, as much as anyone, to live with the dignity in retirement they earned through a lifetime of work.”

Vermont is one of five states that “fully tax” Social Security benefits, Scott said. “Today I ask you to join me in bringing that number to four, by phasing in the elimination of this tax on seniors living on low and moderate incomes,” the governor said.

Greg Marchildon, AARP Vermont State Director, lauded Scott’s plan.

“We strongly endorse the move to reduce and eliminate the state’s taxation of Social Security benefits for older and low income Vermonters – legislation AARP Vermont is working hard to see through to passage,” Marchildon said. “Social Security provides a basic foundation of income stability for retirees and their families. Our governor and legislators alike recognize the need to make a change that will contribute to the financial security of thousands of older Vermonters.”