VERMONT - As Vermont moves into 2026, the state is doubling down on affordability with a series of significant tax reliefs and wage adjustments. While some of these changes were part of the 2025 legislative session's budget, their implementation is timed to hit your wallet starting January 1, 2026.
Here are the five most significant new laws and financial updates taking effect in the Green Mountain State this New Year.
1. The 2026 Minimum Wage Hike ($14.42)
Vermont continues its annual inflation-adjusted wage increases to help workers keep up with rising costs in the Northeast.
- The New Rate: On January 1st, the state minimum wage officially increases from $14.01 to $14.42 per hour.
- Tipped Workers: The "Basic Tipped Wage Rate" also rises to $7.21 per hour.
- The Rule: If a tipped employee's hourly tips plus their $7.21 base wage do not equal at least $14.42, the employer is legally required to pay the difference.
2. Full Military Pension Tax Exemption
In a major victory for veterans, Vermont is ending the state income tax on military retirement benefits. For years, Vermont was one of the few states that still taxed this income, but as of the 2026 tax year, that changes.
- The Change: Military retirement and survivor benefits are now 100% exempt from state income tax for taxpayers with an Adjusted Gross Income (AGI) up to $125,000 (with a phase-out up to $175,000).
- Impact: This historic shift is designed to encourage veterans to stay in or move to Vermont, bringing their skills and experience to the State workforce.
3. The "Childless" EITC Expansion (100% Match)
Vermont is significantly expanding the Earned Income Tax Credit (EITC) for lower-income workers without qualifying children.
- The Boost: Previously, the state credit for childless workers was set at 38% of the federal amount. Starting January 1, 2026, it jumps to 100% of the federal credit.
- Purpose: This massive increase is intended to support young professionals and single workers who often face high living costs but don't qualify for child-related tax breaks.
4. Expanded Social Security Tax Relief
Middle-income seniors will see more of their Social Security checks stay in their pockets thanks to a threshold expansion taking effect this January.
- The Update: The AGI threshold for the Social Security income tax exemption is being increased by $5,000.
- The Result: This expansion allows more seniors to qualify for either a full or partial exemption on their benefits, providing a critical buffer against rising property taxes and utility costs.
5. The New $250 Vermont Veteran Tax Credit
In addition to the pension exemption, Vermont is introducing a brand-new refundable tax credit specifically for low-income veterans.
- The Benefit: Eligible veterans can claim a refundable credit of up to $250.
- Eligibility: This credit is targeted at veterans with a federal AGI of $25,000 or less. Because it is "refundable," you can receive the money even if you do not owe any state taxes for the year.
Bonus: The Child Care "Tuition Cap" (Act 76)
Parents should be aware that under the ongoing rollout of Act 76, child care programs receiving state financial assistance are prohibited from exceeding a specific "cap" on their annual tuition increases. For the 2026 fiscal year, this cap is estimated at 6.1%. This ensures that the state’s massive investments in child care subsidies aren't immediately erased by unchecked tuition hikes.
