Active-duty and reserve pay
Residents serving on full-time active duty outside Vermont are not taxed on military pay. Residents living in Vermont are taxed.
An E-5 with over 6 years of service earns $49,320 a year in basic pay. If those conditions are met, Vermont does not tax it. If not, the full $49,320 counts as Vermont income. Housing and food allowances are never taxed by any state.
Military retired pay
Military retired pay is exempt for households under $125,000 of income, phasing out to no exemption at $175,000.
Your state of legal residence decides
Military pay is taxed by your state of legal residence, usually the state you lived in when you joined or one you later adopted by changing your records, not by the state where you are stationed. This comes from the Servicemembers Civil Relief Act. Spouses can choose to use the member's state of legal residence for their own income too.
See your total pay with state tax
Questions
Does Vermont tax military pay?
Vermont exempts military pay only in certain cases, mainly when you are stationed outside the state. Residents serving on full-time active duty outside Vermont are not taxed on military pay. Residents living in Vermont are taxed.
Does Vermont tax military retirement pay?
Military retired pay is exempt for households under $125,000 of income, phasing out to no exemption at $175,000.
Is BAH taxed in Vermont?
No. BAH and BAS are not taxable income for federal or state tax in any state.
Which state taxes me if I am stationed in Vermont?
Under the Servicemembers Civil Relief Act, your military pay is taxed only by your state of legal residence, not the state where you are stationed. If Vermont is not your legal residence, Vermont does not tax your military pay.