According to the Vermont Tax Guide for Military and National Services:
In Vermont, the taxability of your 2025 military income depends on several factors, including your residency, where the income was earned, and your total Federal Adjusted Gross Income (AGI).
Active Duty Pay
Vermont Residents Stationed in Vermont: Active duty pay is generally taxable.
Vermont Residents Stationed Outside Vermont: Active duty pay earned outside of the state is exempt from Vermont income tax.
Combat Zone Pay: Military pay received in a combat zone that is exempt from federal taxes is also exempt from Vermont state taxes.
To claim the deduction of the active duty military pay, follow these steps in the program:
- State Section
- Edit (3 dots)
- Subtractions From Income
- Military Pay (IN-113)
- Continue
If you are a nonresident of Vermont stationed in Vermont, your active duty pay is not taxable to Vermont.
Your W-2 should not have Vermont listed as the state in Box 15. If it does, have your payroll department correct the W-2 and issue a new W-2.
If one spouse is a resident and the other is not, file a married filing separate return for the spouse that has a filing requirement. If both spouses are required to file, one files a resident Married Filing Separate return and the other files a nonresident Married Filing Separate return.
National Guard and Reserve Pay:
The first $2,000 of military pay for unit training in Vermont for National Guard and U.S. Reserves personnel may be exempt if the service member’s Federal Adjusted Gross Income is less than $50,000.
To enter an exempt income subtraction into the account, follow theses steps in the program:
- State Section
- Edit (3 dots)
- Subtractions from Income
- Military Pay, enter amount
- Continue
Funds received through the federal armed forces educational loan repayment program:
Under Title 10 U.S.C. chapters 109 and 1609, to the extent the funds are included in adjusted gross income of the taxpayer for the taxable year.
To enter exempt education loan repayments into the account, follow these steps in the program:
- State Section
- Vermont State Return
- Subtractions from Income
- Military Pay, enter amount
- Continue