Vermont does not tax Social Security Disability Insurance benefits

Vermont is one of the states that does not impose a state income tax on SSDI payments. If you receive SSDI and live in Vermont, you will not owe Vermont state income tax on those benefits, regardless of how much you receive or what other income you have.

This is different from federal income tax. The federal government may tax a portion of your SSDI depending on your total income, but Vermont adds no additional tax on top of that. The distinction matters because it means your Vermont state tax return will not include SSDI as taxable income, even if the IRS counts some of it on your federal return.

Key Takeaways

  • Vermont does not tax SSDI benefits at the state level, so you owe no Vermont income tax on those payments.
  • Federal income tax may still explore to a portion of your SSDI if your combined income exceeds certain thresholds, but that is separate from Vermont's rules.
  • You do not need to report SSDI as income on your Vermont state tax return, though you may still need to file if you have other income.
  • Other types of disability income—such as workers' compensation or private disability insurance—may be taxed differently under Vermont law.

How Vermont's SSDI tax rule works in practice

When you file your Vermont state income tax return, SSDI is excluded from taxable income. This applies to the full amount you receive, not just a portion. If SSDI is your only income, you typically will not need to file a Vermont state return at all, though you may still need to file a federal return depending on your total income and filing status.

If you have income from other sources—wages, self-employment, interest, or pensions—you will report those on your Vermont return, but SSDI stays off the form. This simplifies your state filing because you do not have to calculate what portion of SSDI is taxable versus non-taxable; Vermont treats all of it as non-taxable.

Federal tax treatment is separate from Vermont's rule

Vermont's decision not to tax SSDI does not change how the federal government treats your benefits. The IRS may tax up to 85 percent of your SSDI if your combined income exceeds certain thresholds. Combined income includes your SSDI, plus half of your SSDI, plus any other income (wages, interest, pensions, and so on).

For 2024, if you are single and your combined income exceeds $25,000, the IRS begins to tax a portion of your SSDI. If you are married filing jointly, the threshold is $32,000. These thresholds do not change year to year, and they are federal rules only—Vermont does not use them. You will report any federal SSDI tax on your Form 1040, not on your Vermont return.

This means you could owe federal income tax on SSDI while owing nothing to Vermont. The two tax systems work independently.

Other disability income and how Vermont taxes it

SSDI is not the only form of disability income. If you receive workers' compensation for a work-related injury or illness, Vermont does not tax that either. Workers' compensation is excluded from Vermont taxable income across the board.

If you receive income from a private disability insurance policy—one you or your employer paid premiums for—Vermont's tax treatment depends on who paid the premiums. If you paid the premiums with after-tax dollars, the benefits are not taxed by Vermont. If your employer paid the premiums and you did not include them as taxable wages, Vermont will tax the benefits you receive. Check your policy documents or contact your insurance company to confirm who paid the premiums.

Supplemental Security Income (SSI), which is different from SSDI, is also not taxed by Vermont. However, SSI is a means-tested program with strict income and resource limits, so most people receiving it will not have other income that triggers a filing requirement anyway.

When you still need to file a Vermont return despite SSDI

Even though SSDI itself is not taxable in Vermont, you may still need to file a state return if you have other income. If you work part-time, receive a pension, have interest or dividend income, or are self-employed, you must report those on your Vermont return. The filing threshold depends on your age and filing status, but generally you must file if your non-SSDI income exceeds a certain amount.

Contact the Vermont Department of Taxes or use the IRS interactive tax assistant to determine whether you must file. Filing is free, and filing even when you do not owe tax can help you claim the Earned Income Tax Credit or other refundable credits if you work.

Reporting SSDI on your Vermont return

If you file a Vermont return, you will not list SSDI as income anywhere on the form. Vermont's tax forms do not have a line for SSDI because it is not taxable. You will only report income from other sources—wages, self-employment, interest, dividends, pensions, and so on.

Keep your Social Security statement and any 1099-SSA forms you receive for your records, but do not include them in your Vermont filing. If you are also filing a federal return, you will report SSDI on your federal forms (Form 1040) according to IRS rules, which are different from Vermont's.

Frequently Asked Questions

Do I have to file a Vermont tax return if SSDI is my only income?

No. If SSDI is your only income and you are below the filing threshold for your age and status, you do not need to file a Vermont state return. However, you may still need to file a federal return depending on your total income and filing status. Check the IRS website or contact the Vermont Department of Taxes to confirm your specific situation.

Will Vermont tax my SSDI if I move there from another state?

No. Vermont does not tax SSDI regardless of when you move there or where you lived before. Once you are a Vermont resident, SSDI is excluded from your state taxable income. Your federal tax treatment does not change based on your state of residence.

What if I receive both SSDI and SSI?

Neither SSDI nor SSI is taxed by Vermont. However, most people cannot receive both programs at the same time because SSI is means-tested and SSDI is not. If you do receive both, neither amount is reported as income on your Vermont return.

Does Vermont tax my SSDI if I also work?

No. Your SSDI remains untaxed by Vermont even if you have wages from work. You will report your wages on your Vermont return, but not your SSDI. Your federal tax situation may be different—the IRS may tax a portion of your SSDI if your combined income is high enough—but Vermont will not.

Where can I find Vermont's official tax rules on SSDI?

The Vermont Department of Taxes publishes guidance on what income is taxable and what is not. You can contact them directly at their website or call their tax information line. You can also consult IRS Publication 915, which explains federal SSDI taxation, though it does not cover state rules.