JFO walks Ways & Means through Vermont personal and corporate income tax rules, recent changes and revenue volatility

Pat Jitterton, a revenue analyst with the Joint Fiscal Office, told the Vermont House Ways & Means Committee on Jan. 22 that the state’s personal income tax calculation begins with taxpayers’ federal adjusted gross income and then moves through a series of Vermont-specific adjustments, brackets and credits before producing a final liability.

Why it matters: personal income tax provides more than half of Vermont’s general fund revenue and corporate income taxes about 10 percent. Changes at the federal level and state choices about deductions, credits and apportionment can materially affect the state budget and the distribution of tax burdens across income groups.

Jitterton said the “starting point for all of this is the 1040 IRS form,” meaning federal adjusted gross income (AGI). From AGI the state adds or subtracts items that differ from federal rules (for example, Vermont adds back interest from out-of-state municipal bonds and bonus depreciation). Vermont then applies its own standard deduction and personal exemptions, which function to shift taxable income by family composition, and runs the result through Vermont’s marginal rate schedule.

On personal income tax specifics, Jitterton highlighted recent state changes and major credits. Vermont now uses its own standard deduction and exemptions that grow with the federal inflation adjustments, he said, and the state’s top marginal personal rate reaches the upper tier of the schedule. Major tax expenditures in the personal code include the…