How 2025 Tax Law Changes Could Mean Bigger Refunds for Vermonters

Vermont has enacted a series of tax reforms for the 2025 tax year that could put more money back into the pockets of thousands of residents. These changes — many of which expand tax credits and increase income thresholds — aim to provide meaningful financial relief for families, workers, retirees, and veterans across the state. One of the most significant updates is the expansion of the Vermont Child Tax Credit (CTC). The 2025 legislation provides a refundable $1,000 credit per child aged six or younger and expands eligibility to individuals who lack a federal taxpayer identification number, making the credit more widely accessible. This means more low‑ and moderate‑income families may receive larger refunds, especially those with young children.

In addition, the state has expanded the Earned Income Tax Credit (EITC), aligning benefit amounts with federal levels — 100% for individuals without qualifying children and 38% for those with children. Importantly, eligibility has been broadened to include individuals without a qualifying taxpayer identification number. This expansion means many working Vermonters who previously didn’t qualify may now receive substantial refundable credits, increasing their overall tax refund.

Refunds may also grow for retirees. Vermont has raised income thresholds for the Social Security income exclusion, increasing them to $55,000 for single filers and $70,000 for joint filers, with widened phase‑out ranges. These changes allow more older Vermonters to exclude retirement income entirely, potentially resulting in a lower tax liability and a higher refund.

Other retirement income exclusions have also been strengthened. Up to $10,000 of Civil Service Retirement System (CSRS) income — and similar amounts for other contributory retirement systems — may now be excluded for qualifying taxpayers. In addition, U.S. military retirement and survivor benefits are now fully excluded for households earning up to $125,000, with partial exclusions available above that threshold. These changes make Vermont more retirement‑friendly and help veterans and career public servants retain more of their income.

Finally, the state introduced a new refundable $250 Vermont Veteran Tax Credit for lower‑income veterans, offering direct relief to some of the Vermonters who need it most.

On a federal level, the 2025 “One Big Beautiful Bill” legislation could also impact your 2025 refund. From the new $15,750 standard deduction and $6,000 senior bonus deduction to the expanded $40,000 SALT cap and $2,200 Child Tax Credit, the new law has altered the tax landscape. Read more.

When all these updates are combined, many Vermonters — including families with young children, low‑income workers, retirees, and veterans — could potentially see higher refunds when they file their 2025 taxes this April.

Recipients should not act on the information presented without seeking prior professional advice. Additional guidance may be obtained by contacting Davis & Hodgdon at 802-878-1963.

Davis & Hodgdon works closely with clients to ensure that they are aware of expanded credits and exclusions to help more households take full advantage of the relief now available.

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This article was developed with the assistance of Microsoft Copilot, an AI tool used to help with writing, organization, and clarity.