Vermont Military Retirement and Survivor Benefit Income Exclusion

Title 32, section 5830e(d) excludes U.S. military retirement income and U.S. military survivor benefit income received by an eligible beneficiary from Vermont taxable income, for taxpayers of any filing status. At a federal adjusted gross income of $125,000.00 or less, all of it is excluded. Between $125,000.00 and $175,000.00 the excluded share is proportional: subtract AGI from $175,000.00, divide by $50,000.00, and multiply the result by the retirement and survivor benefit income received. At $175,000.00 or above, none of it is excluded. "For taxpayers of any filing status" is doing real work in that sentence. Every other exclusion in section 5830e splits the thresholds by filing status, with $55,000 and $65,000 for a single filer and $70,000 and $80,000 for a married couple filing jointly. The military exclusion does not. A married couple filing jointly gets the same $125,000 and $175,000 as a single filer, which is unusually generous at the bottom of the range and unusually harsh at the top. The change that matters most is in subsection (e) and it is not about the amount. Subsection (e)(1) requires a taxpayer eligible for more than one of the exclusions under subsections (a), (b), and (c) to elect only one. Subsection (e)(2) then says that a taxpayer eligible for the military retirement and survivor benefit exclusion under subsection (d) may elect that exclusion regardless of whether the taxpayer also elects an exclusion under subsections (a) through (c). A Vermont military retiree who also draws Social Security takes both. Vermont's own Office of Veterans Affairs still tells veterans the opposite. Its tax page says that "taxpayers receiving social security income and military retirement pay can only elect one exclusion, either the Social Security tax exemption or the Military Retirement pay tax exemption, but not both." That was the law before 2025 Act 71 and it is not the law now. The same page dates Act 71 to May of 2025; the act records that the Governor signed it on June 25, 2025. If a preparer or a benefits counselor tells a Vermont retiree to choose, point them at section 5830e(e)(2). 2025 Act 71, section 3, effective January 1, 2025, is what did it. Before that act, subsection (d)(3) sent military retirement income through subsection (b) to be treated as though it were Civil Service Retirement System income, which capped it at the first $10,000.00 and subjected it to the elect-one rule. The act struck that sentence, wrote the $125,000 and $175,000 schedule in its place, and moved the military exclusion outside the election. The act applies to taxable years beginning on and after January 1, 2025. Survivor benefit income is inside the same schedule on the same terms, so an SBP annuitant reads this entry rather than looking for a separate survivor provision. Note that the exclusion is of federally taxable income: the portion of an annuity that is not taxable federally never enters the calculation. Vermont taxes VA disability compensation nowhere, because it is not federally taxable income to begin with and Vermont starts from federal AGI. That is not an exclusion under this section and does not use up anything.