You can exempt military retired pay from Vermont income tax starting with the 2025 tax year, on returns filed after 1 January 2026. If your federal adjusted gross income is $125,000 or less, all of your military retired pay is exempt. If your federal adjusted gross income is between $125,000 and $175,000 you get a partial exemption, worked out by subtracting your adjusted gross income from $175,000, dividing by $50,000, and multiplying the result by your total military retired pay. Above $175,000 there is no exemption.
There is nothing to apply for. Claim the exemption on your Vermont return for the 2025 tax year or later. If you are unsure how much is exempt, ask the Vermont Department of Taxes or your preparer to work out the proration.
Your Form 1099-R showing your military retired pay, and your federal return showing your adjusted gross income.
