According to the Vermont Tax Guide for Military and National Services:
If you are a resident of Vermont stationed in Vermont, your active duty military pay is taxable on the state return.
If you are a resident of Vermont stationed outside of Vermont, your active duty pay is not taxable on the state return.
To claim the deduction of the active duty pay, follow these steps in the program:
- State Section
- Vermont Resident Return
- Subtractions From Income
- Military Pay (IN-113)
- Save
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:
$2,000 of military pay for unit training in Vermont for National Guard and U.S. Reserves personnel when the unit certifies the training was completed during the calendar year and the service member’s Federal adjusted gross income is less than $50,000.
To enter exempt active duty training income subtraction into the account, follow theses steps in the program:
- State Section
- Vermont Resident Return
- Subtractions from Income
- Military Pay, enter amount
- Save
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
- Save