House Ways and Means hears testimony on H.43 to exempt military retirement and survivor pay from Vermont income tax

Representative Morgan told the House Ways and Means Committee on Jan. 31 that he had introduced H.43 “an act relating to exempting military retirement and survivor benefit income from Vermont income tax.”

The bill would exempt military retirement pensions and survivor benefits from state income tax. Proponents told the committee they view the measure as a tool to retain and attract military retirees and their families to Vermont; the Joint Fiscal Office estimated the exemption would reduce state revenue by about $3,900,000 annually.

Why it matters: The committee heard that the group directly affected is small relative to all veterans but concentrated in age bands employers need. Pat Tidderton of the Joint Fiscal Office told lawmakers that about 3,900 military retirees live in Vermont (and that Department of Defense data for 2022 showed roughly 2,921 retirees and about 3,600 receiving benefits), and that those retirees received roughly $91 million in benefits in 2022 — about $25,000 per retiree on average, below the national average. Tidderton summarized the fiscal effect: “We estimate that this exemption would forego about $3,900,000 in revenue, annually.”

Testimony and fiscal details Pat Tidderton, representing the Joint Fiscal Office, walked lawmakers through the estimate and the eligibility thresholds currently used for the existing $10,000 exemption. He said the bill’s income thresholds mirror the Social Security exemption: single filers qualify at $50,000 or below (phasing out by $60,000) and joint filers at $65,000 (phasing out by $75,000). Tidderton also stressed that taxpayers who receive both military retirement pay and Social Security may claim only one of the two exemptions when filing.

Major General Knight framed the proposal as a workforce and recruitment tool for the Vermont National Guard and the state. He described outreach efforts to attract prior-service personnel and noted retirement systems have changed: “We now have a blended retirement system, which functions like a 401(k),” and that those plans can vest quickly; when asked how long someone must serve to vest, he said, “I believe they are vested actually at 2 years.” Knight emphasized using the exemption as part of broader recruiting and employer partnership efforts.

Gary DeGasta, chair of the Governor’s Veterans Advisory Council and a retired Army colonel, summarized decades of prior proposals and reiterated that exempting military retirement pay is not a cure-all but could help stem the loss of working-age residents. DeGasta urged the committee to include survivors who depend on retirement and survivor benefits in any tax relief, saying the survivors “are extremely well deserving.”

Points of clarification and data noted for the record - Population and benefits: Tidderton gave multiple figures from available sources: about 34,000 veterans in Vermont and roughly 3,900 military retirees; DoD actuary data for 2022 cited about 2,921 retirees and about 3,600 beneficiaries receiving payments. He said retirees received about $91 million in DoD payments in 2022 (average roughly $25,000), compared with a U.S. average of about $31,000. - Survivors: Tidderton said about 751 Vermonters received survivors benefits in 2022, totaling nearly $9 million and averaging about $12,000 per recipient. - Distribution by rank: Tidderton noted officers receive larger average pensions (about $43,000 in Vermont) while enlisted retirees average about $19,000; roughly three-quarters of retirees are enlisted. - Fiscal thresholds and filing: The committee was told that the military-retiree exemption equals the Social Security exemption in income thresholds and that a taxpayer may claim only one of those exemptions.

No formal committee vote was taken on H.43 during the session. Committee members said the bill will be revisited in future hearings, likely in the context of the governor’s budget, and witnesses indicated the Joint Fiscal Office will supply supporting materials the committee can use in later deliberations.

The committee accepted written materials and testimony the witnesses said they would submit for the public record and signaled further review at a later hearing tied to the governor’s budget process.