Updated October 5, 2026. Quick answer: Yes. Vermont starts from federal adjusted gross income and taxes interest and dividends on four rates that run from 3.35% to 8.75% for 2025. “Interest and dividend income from non-Vermont state and local obligations” is taxable, and interest on U.S. government obligations is subtracted.
How Vermont treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed on the graduated schedule |
| 2025 rates | 3.35%, 6.60%, 7.60% and 8.75%, rising with taxable income, on “Single Individuals, Schedule X” and the other schedules |
| Minimum tax | When federal AGI exceeds $150,000, the schedule’s line 8 is the greater of the schedule calculation and “3% of Adjusted Gross Income less interest from U.S. obligations” |
| Vermont bonds | “A Vermont obligation is one from the state of Vermont” or a Vermont municipality, and its income is not added back |
| Mutual funds | A fund holder “enter only the amount for the Vermont obligation(s).” The statute adds back fund dividends to the extent attributable to non-Vermont obligations |
| U.S. obligations | Subtracted: “Interest income from U.S. government obligations (such as U.S. Treasury” bonds, bills and notes) |
A $20,000 example
Taxable dividends and interest of $20,000 taxed wholly at the lowest rate, 3.35%, would add $670; taxed wholly at the top rate, 8.75%, $1,750. Your total taxable income decides the bracket.
What changes in 2026
The archived documents print the 2025 schedules and no 2026 change to the way dividends and interest are taxed.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Vermont taxes capital gains, whether Vermont taxes pensions, how Vermont taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 Vermont Tax Rate Schedules: https://tax.vermont.gov/sites/tax/files/documents/TaxRateSched-2025.pdf
- 2025 Vermont Income Tax Booklet: https://tax.vermont.gov/sites/tax/files/documents/Income-Booklet-2025.pdf
- 32 V.S.A. 5811 Definitions: https://legislature.vermont.gov/statutes/section/32/151/05811
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.