House version drops unpaid caregiver tax credit; expands other Vermont tax breaks

At a Finance meeting, staff reviewed two versions of S.51 and related tax changes: the Senate proposal included a refundable unpaid caregiver tax credit, while the House amendment removed that credit and instead folded in several other tax changes, with staff citing an estimated $6 million fiscal effect for the Senate caregiver credit and roughly $13.5 million for the House package.

The discussion matters because the proposals change tax relief targeted to unpaid family caregivers, families with young children, low-income workers, retirees and veterans, and because staff said the different versions have materially different budget impacts.

Staff member 2, a staff member, described the Senate bill: “S 51 as passed by the senate was an act relating to the Vermont unpaid caregiver tax credit.” Under that version, the credit would be refundable, available to resident and part‑year resident individuals, with a maximum allowable credit of $1,000 for providing 12 months of uncompensated care. The credit would be prorated monthly based on the number of months an individual provided at least 20 hours per week of unpaid care. Staff member 2 said recipients would have to meet several requirements, including being related to the claimant by blood, marriage or adoption, needing assistance with activities of daily living or home care, having a medical diagnosis or disability, and not residing in a nursing facility. The proposal includes an adjusted gross income phaseout above $125,000 and would require an attestation by the claimant; staff noted the Department of Taxes could seek compliance documentation, potentially including a form signed by a medical professional.

Staff member 2 summarized the House amendment as removing the unpaid caregiver credit and incorporating several other tax items. The House package, according to staff, would increase the qualifying age for the child tax credit from 5 to 6; allow taxpayers without qualifying children to receive 100 percent of the federal Earned Income Tax Credit (EITC) while leaving taxpayers with qualifying children at the existing 38 percent state rate; increase thresholds for existing partial exclusions of retirement income (including Social Security and Civil Service Retirement System benefits) by $5,000; expand the retirement exclusion to explicitly include U.S. military survivor benefit income; and create a Vermont veteran refundable credit of up to $250 with an AGI eligibility cap and phaseout.

On fiscal impacts, Staff member 4, a staff member, gave the estimates: the Senate caregiver credit was estimated to cost about $6,000,000 in foregone revenue, while the House package totaled about $13,500,000 within the budgeted allowance. Staff member 4 provided a breakdown the group discussed: a $4.5 million increase for the child tax credit change, about $3.0 million for moving taxpayers without children to 100 percent of the federal EITC, roughly $2.1 million for the Social Security/CSRS exclusion changes, about $2.5 million for the military retirement changes, and $1.4 million for the veteran credit.

Meeting participants also discussed the policy rationale and administrative costs. Staff member 4 said the move to 100 percent of the federal EITC for taxpayers without qualifying children represents a large percentage increase for that group but a relatively small dollar change because federal maximums and eligibility thresholds are lower for taxpayers without qualifying children. A staff participant noted that creating state definitions that differ from federal tax definitions can create “an enormous amount of administrative challenges for the tax department,” a reason offered for adopting the federal baseline in this change.

There were no formal motions or votes recorded in the meeting transcript. Participants agreed to revisit remaining questions and said they would schedule another discussion later in the week to review outstanding details.

Next steps discussed include further review by staff of the House changes and follow‑up questions on the dependent care credit and administrative feasibility. Staff said the House package changes would be effective for tax filings next year.