Vermont Ways & Means reviews H.43 tax package; officials cite $13.5M annual cost for full proposal

Montpelier — The Vermont House Ways & Means Committee spent its April 22 meeting reviewing H.43, a multi-part measure that would expand several state tax credits and raise income thresholds for partial exemptions of retirement income, including Social Security and certain federal pensions.

Kirby Keaton, legislative council, told the committee H.43 “does three things”: it raises the age eligibility for the Vermont Child Tax Credit from 5 to 6; it increases the state earned-income tax credit (EITC) for filers without qualifying children to a higher percentage of the federal credit; and it raises the adjusted gross income (AGI) thresholds used to calculate the partial exemption for Social Security and some retirement income (including certain federal retirement and military pensions).

The package overlaps with S.51 from the Senate, which Keaton and committee members said carries an unpaid-caregiver credit and may be combined with H.43 language as the bills move forward. Keaton and staff noted the bills have not completed crossover and will require further action if the House wants the provisions to reach the Senate.

Patrick Titterton of the Joint Fiscal Office presented fiscal estimates and context. The office’s consensus figures with the Tax Department show: increasing the child tax credit eligibility age from 5 to 6 would cost about $4.5 million per year; raising the state share of the EITC for filers without children would cost about $3 million per year; and increasing the AGI thresholds for the partial Social Security and related retirement exemptions (a $5,000 increase per threshold) would cost about $2.1 million per year. Titterton said adding survivor benefits and fully accounting for military-retirement exemptions brings the total estimated cost of the four measures to about $13.5 million annually.

Titterton emphasized the fiscal estimates are consensus numbers prepared with the Tax Department and noted demographic trends could change long-term costs: "Because of Vermont's demographics and this is a retirement-targeted tax exemption, this is one that has potential to increase in costs over time as Vermont continues to age and more people have this type of income," he said.

Committee members pressed staff for clarification about who would be eligible for the military-retirement portion of the proposal. Members and staff repeatedly distinguished between "veterans" (anyone who served, often a large group) and "military retirees" (generally those who served long enough — typically about 20 years — to receive a military pension). Titterton provided figures showing about 34,000 veterans in Vermont versus approximately 3,900 military retirees, of whom roughly 3,600 were actively receiving retirement benefits in the most recent data he cited.

Keaton and Titterton also reviewed technical details: the bill would allow some filers who lack a federal taxpayer identification number to claim the state EITC; the bill contains clarifying language to prevent Vermont from inadvertently importing certain nonrefundable federal eligibility rules; and the statute’s current link to a specified federal tax year (the ‘‘link up’’) means Vermont annually decides which federal code version to reference rather than adopting a rolling federal linkage.

Members asked about practical effects and communicated constituent concerns. Representative Brannigan (by name) and others raised letters from constituents who believed, incorrectly, that many veterans — including those with short service or disability-only benefits — would automatically qualify. Staff repeatedly told the committee that, as drafted, the military-retirement exemption applies to pension income for military retirees (typically 20-plus years of service) and that many veterans who served shorter terms would not qualify for that specific exemption. Titterton said the proposal would also exempt survivor benefits; he noted about 751 Vermont taxpayers received military survivor benefits in 2022, with an average benefit near $12,000.

The committee did not take a vote on H.43 at the April 22 meeting. Members were reminded that the committee will hear additional stakeholder testimony the following day and that related language in Senate bills (including S.51 and workforce proposals) could affect which provisions are necessary or need conforming changes.

Background and next steps: staff said the bill’s changes would take effect for tax filings next year if enacted. Committee members asked staff to circulate memos used in the presentation and to flag technical questions (such as distinctions among CSRS, FERS and other contributory federal retirement systems) for witnesses scheduled to appear in the next hearing.

Those materials and the fiscal memo are on the committee website, staff told members. The committee adjourned with plans to vote on a separate charter amendment for Swanton the next morning and to continue hearings on pension and retirement tax credits.