Ways & Means committee reviews bill packaging child tax, EITC and retirement-exemption changes

The Ways & Means Committee considered a committee bill that packages three proposed changes to Vermont income tax credits and partial retirement-income exemptions that were part of the administration’s miscellaneous tax bill, H.135.

The bill would (1) raise the maximum age for the Vermont Child Tax Credit from children age 5 and younger to children age 6 and younger; (2) change the state treatment of the Earned Income Tax Credit (EITC) so that individuals without qualifying children would receive 100% of the state EITC percentage rather than the current, lower percent; and (3) increase partial-exemption thresholds for retirement and Social Security income by $5,000 (for example, changing a $50,000 threshold to $55,000 and the phase-out range from 50–60k to 55–65k).

Kirby (staff member), who presented the draft committee bill, said the measure “takes 3 of the changes to income tax credits from H.135 and puts them into a committee bill by themselves.” Kirby explained the bill includes clarifying language directing the Department of Taxes “when considering whether someone's eligible for this credit, should not look at federal rules relating to whether a person can receive a refund,” to avoid federal refundability rules being applied in ways that would deny eligibility under Vermont law.

On the EITC change, Kirby said the bill would make individuals without qualifying children eligible for 100% of the state’s EITC percentage while individuals with qualifying children would continue to receive the lower, currently statutorily defined percentage (historically described in committee as 38% for the child-qualified category). Kirby cautioned that the percentage increase for childless filers does not necessarily translate to a larger dollar amount, because the state percentage is applied to the federal EITC base amount and the federal credit for filers with qualifying children is typically a larger base.

The retirement and Social Security provision would raise several threshold amounts by $5,000. For Social Security, Kirby said the bill keeps the current exclusion structure—it preserves the rule that, if a taxpayer’s federal adjusted gross income is at or below the threshold, “all of those benefits are excluded” from taxable income—while moving the threshold up (for example, from $50,000 to $55,000) and moving the phase-out range up accordingly.

Committee members pressed for clarification about military pensions and other retirement systems. Kirby pointed the committee to the statutory text (shown in committee materials as the statutory subsection J 30 E) and explained that U.S. military retirement income is treated under the statute “as though the income were received from [a] civil service retirement system” and is therefore subject to the same limitations and the same $10,000 exclusion structure; the bill raises the eligibility thresholds that determine who receives the full exclusion or enters the phase-out. Kirby also reiterated that a taxpayer may elect between the different exclusions (civil-service/military retirement exclusion versus the Social Security exclusion) but generally may not claim multiple, overlapping exclusions for the same income in a single year.

Representative Canfield and other members asked whether the governor’s proposed full exemption of military pension income remains in the package. Committee discussion confirmed the full-exemption proposal (a different bill referenced in committee materials) is not included in this committee bill; instead, this draft expands the existing partial-exemption treatment. Kirby noted the fuller exemption language in H.135 was set aside to be considered separately.

No formal motion or vote occurred. Pat, who was expected to join to walk through a benefits-flow chart and numerical examples, was not present; the committee paused to reconvene when Pat can present the illustrative calculations.

Why it matters: the changes would affect families with young children, low‑income adults without qualifying children, Social Security recipients and military or civil‑service retirees by altering eligibility and the dollar impact of state credits and exemptions. Committee members asked for clearer numeric examples and for statutory cross-references before advancing the measure.