Updated October 16, 2026. Quick answer: Vermont exempts up to $10,000 of retirement system income, but the exemption is for benefits from government retirement systems based on earnings not covered by Social Security, and the documents read do not name 403(b) or 457(b) plans, so a 403(b) or 457(b) distribution is not shown to qualify.
State retirement-income forms, line by line: Vermont Schedule IN-112.
Vermont at a glance
| Item | What the documents say |
|---|---|
| How the state treats 403(b) and 457(b) withdrawals | The documents read do not say whether these plans qualify |
| Do the state’s documents name these plans? | The documents read name neither 403(b) nor 457(b) plans |
| Retirement exclusion or credit | Retirement income exemption of up to $10,000, with a phase-out between $55,000 and $65,000 of AGI for single filers |
| Public-employee pension rule | Yes, income from U.S. government and state government retirement systems can qualify |
| Rate in the documents read | Progressive; the 2025 schedules print brackets up to 8.75% |
| Changed for 2026? | The documents read describe no 2026 change |
What the Vermont documents say
The booklet’s worksheet tells the filer to “enter your eligible retirement system income or $10,000, whichever is less”. The exemption applies to benefits “based on earnings not covered by the Social Security Act”. It is a full exemption at AGI of $55,000 or less for a single filer or $70,000 for joint filers, and it phases out to zero at $65,000 or $80,000.
Section 5830e of Title 32 of the Vermont Statutes governs the exemption, and the 2025 rate schedules print a top bracket of 8.75%.
Withholding and federal tax
Whether a state withholds is a separate rule: see state withholding on retirement withdrawals. Federal rules: 403(b) withdrawal rules and 457(b) withdrawal rules. The IRS says pension and annuity payments from a qualified employer plan have “all or some portion of the amounts you receive may be taxable”.
What the documents do not say
- The documents read never name 403(b) or 457(b) plans.
- The exemption covers government retirement systems, and a private-employer or other 403(b) is not shown to qualify.
- The booklet and rate schedules are for tax year 2025.
Common mistakes
- Assuming Vermont’s rule for a 401(k) or IRA also covers a 403(b) or 457(b): read whether its documents name the plan.
Related: whether Vermont taxes 401(k) and IRA withdrawals, Vermont retirement taxes, whether Vermont taxes pensions, 403(b) withdrawal rules, 457(b) withdrawal rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 Vermont Income Tax Booklet (Retirement Income Exemption Worksheet): https://tax.vermont.gov/sites/tax/files/documents/Income-Booklet-2025.pdf
- 2025 Vermont Tax Rate Schedules: https://tax.vermont.gov/sites/tax/files/documents/TaxRateSched-2025.pdf
- 32 V.S.A. § 5830e. Retirement income; Social Security income: https://legislature.vermont.gov/statutes/section/32/151/05830e
- IRS Tax Topic 410, Pensions and annuities: https://www.irs.gov/taxtopics/tc410
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.