Act No. 138 (H.510) has primarily been referred to as the ‘child tax credit’ bill but as you will see below contains more than that. The bill makes several alterations and additions to Vermont’s Revenue Sources. It makes changes within the Personal Income Tax, the Affordable Housing Tax Credit, and Fees paid to the Department of Finance Regulations. The bill also included two appropriations.

In furthering our vision of an informed and active electorate, we are providing summaries of key bills considered during the 2022 legislative session. H.510 is one of these.

H.510 Bill Summary

The bill creates a new refundable tax credit for families with young children. The tax credit is equal to $1,000 per child aged five and under. For both single and married tax filers, this credit is phased out beginning at $125,000 adjusted gross income until $175,000 when it is completely phased out. It is a fully refundable credit that is 72 percent of the federal child and dependent care credit allowed to the taxpayer.

It expands Vermont’s existing earned Income tax credit from 36% to 38% of the Federal credit, and creates a new deduction from taxable income for the amount of interest paid by a qualified resident taxpayer during the taxable year on a qualified education loan for the costs of attendance at an eligible educational institution. To be eligible for the deduction, a taxpayer must have adjusted gross income equal to or less than $120,000 (if the taxpayer is a single filer) or $200,000 (if the taxpayer is joint filer).   

The bill also increases the income thresholds for the Social Security Income Exemption by $5,000

It creates new $10,000 exemptions for retirement income from the federal Civil Service Retirement System, other noncontributory government retirement systems, and the U.S. military. The new exemptions are subject to the same income thresholds as the Social Security income exemption (see above). Only one new exemption or the Social Security exemption may be claimed by a taxpayer each taxable year.

The bill expands the cap on first year credit allocations for manufactured homes within the Affordable Housing tax credit from $425,000 to $675,000.

And finally, the bill Increases the annual renewal fee paid by investment companies from $1,500 to $1,650.

The two appropriations noted above are as follows;

1. $750,000 in Global Commitment funds in fiscal year 2023 to increase the payments to eligible individuals in the Aid for the Aged, Blind, and Disabled program.
2. $1,000,000 in fiscal year 2023 from the General Fund to the Department for Children and Families for the early childhood staff and home-based provider retention grant program. 

The sections referencing income tax credits, deduction and exclusions are effective retroactively on January 1, 2022 and apply to taxable years beginning on and after January 1, 2022; the sections referencing affordable housing tax credit, appropriations, and fees are effective July 1, 2022.  

A fiscal note was prepared by Vermont’s Joint Fiscal Office which notes a net fiscal impact of $39.72M in FY2023 on the General Fund. $37.97M of this is from net reductions in State General Fund revenues while $1.75M is from appropriations from the General Fund. The appropriations in this bill are for FY2023 only, so the future fiscal impacts of this bill are limited to the tax changes.  In FY2024, the bill is expected to reduce revenues by $36.90M.

As a final comment, it’s important to note that as a result of this bill, individuals will see their Personal Income Taxes decrease by over $41M in FY 2023.

Updates From the Last 6 Weeks of the Legislative Session

April 24th Update

The Senate Finance Committee voted on H.510 on Thursday. The proposal on the table was a strike-all amendment to the bill with a clarification that the program would not impact Medicare benefits. A student loan interest deduction is still included, but with a three year sunset. The deduction would 50% of federal benefit. The child tax credit itself shrunk from $1,200 to $1,000 and the income thresholds were slashed from $200k to $55k. However, the senate version removed the income eligibility requirement for the federal child and dependent care subsidy program. Essentially what they are trying to do is swap state dollars for federal in order to keep this program going in years ahead. The Senate version also adds expenditures for a number of other programs, including manufactured housing, disabilities, and childcare workers. The bill passed out of the Committee unanimously.

April 15th Update

H.510 was originally proposed to create a new Vermont Child Tax Credit of $1,200 per year for every qualifying child six years of age or younger. Half of the credit would be paid out in monthly installments with the remainder paid at time of tax filing. Originally the cost was estimated at $58.8M. The Senate didn't like how the benefits ended up working because they weren't sensitive to income and created a cliff as children aged out.

The Committee of Conference came back with a proposal to have a $1,000 credit for children under 5 with a phase-out for families with income between $125-175K. It would still help about 33k children and cost $39.7M. However, there would also be spending in other areas:

• Increasing the Child and Dependent Care Credit to 72% of federal credit: $3.4M
• Expand EITC from 36% of federal program to 38%: $1.5M
• Student loan interest deduction: $2.2M
• Social Security Income exemption: $1.7M
• Other programs/tax credits: $2M
• Raise securities registration renewal fees to $150: $3.6M in new revenue

The House and Senate both approved the amended bill on voice votes. The bill will be sent to the Governor.

The bill was signed by the Governor on May 27, 2022.

Page last updated 7/24/2022