Vermont Seeks to Break with Federal Tax Changes in H.933 (miscellaneous Tax Bill), JFO Warns

(VERMONT) — Vermont lawmakers are moving to break with selected federal tax changes for tax year 2025, and that matters for 2026 state tax planning and 2026 returns filed in 2027 if you have Vermont taxable income.

The proposal sits in H.933 (Miscellaneous tax bill), introduced on March 17, 2026. It would update Vermont’s tax code to the Internal Revenue Code in effect on December 31, 2025, but reject four federal changes that state officials say would drain revenue too quickly. The Joint Fiscal Office (JFO) issued fiscal note ID 404738 on March 16, 2026, with an earlier draft on March 13.

For immigrants, visa holders, and foreign founders, the main point is simple. If you file a Vermont return, federal tax treatment may not match Vermont tax treatment. That gap can affect owners of startups, foreign-connected businesses, and investors with stock gains.

What Vermont is trying to do

Vermont’s goal is to keep its usual federal “link-up” system, while stopping a few federal business tax breaks from flowing into state law.

State analysts said full conformity would reduce General Fund revenue by $21.3 million in FY2026 and $33.7 million in FY2027 versus the January 2026 forecast. H.933 takes a narrower path. Under the JFO estimate, the bill would produce a net -$3.96 million in FY2026, then +$14.25 million in FY2027 and +$13.45 million in FY2028.

That is why Vermont wants to break with four federal provisions, even while adopting the broader federal code update.

The core proposal

Sections 60–61 of H.933 would link Vermont to the Internal Revenue Code as of December 31, 2025. That update would apply retroactive to January 1, 2025, for tax years beginning on or after that date.

Section 55 would also apply retroactive to January 1, 2025. It carves out four federal changes that Vermont does not want to adopt.

This retroactive structure is the transition rule. In short, Vermont would update its tax code for 2025, but with four state-level exceptions from day one.

The four targeted decouplings

First, Vermont would decouple from bonus depreciation for qualified production property under IRC 168(k)/(n). That means a business could claim faster federal cost recovery, but still face a slower Vermont deduction.

Second, Vermont would reject new federal research and experimental expense treatment for filers that do not meet the federal small business definition. For Vermont purposes, those taxpayers would keep 5-year amortization.

Third, Vermont would decouple from IRC §250 deductions tied to international income, including rules linked to GILTI and FDII. This is the largest single revenue item in the JFO estimate.

Fourth, Vermont would decouple from the federal Qualified Small Business Stock exclusion under IRC §1202. If a gain is excluded federally, it could still be taxable in Vermont.

For immigrant taxpayers, this matters most if you:

• Own a Vermont pass-through business
• Hold stock in a startup
• Have foreign business income tied to federal §250
• Switched from nonresident to resident status during the year
• File both federal and Vermont returns with business schedules

If you are unsure of your federal filing status, start with IRS Publication 519 and the IRS international tax page.

Revenue impact by year

The JFO numbers explain why the bill was drafted this way.

The biggest line items include:

• IRC §250 decoupling: +$0.61 million in FY2026, +$19.22 million in FY2027, +$20.23 million in FY2028
• QSBS decoupling: +$2.65 million in FY2027, +$2.73 million in FY2028

Other federal changes still cost revenue. Those include more generous expensing and business interest rules. But Vermont’s selected decouplings offset much of that loss.

Competitiveness measures and timing

Lawmakers did not stop at decoupling. Section 58 would raise Vermont’s R&D credit from 27% to 75% of the federal credit for eligible in-state research and development.

That change would apply for tax year 2027. The JFO estimates a -$1.74 million General Fund effect in FY2028.

H.933 also includes fund reallocations in Sections 62–63. Those provisions would shift shares of the Meals & Rooms Tax and Purchase & Use Tax among the General, Education, and Transportation Funds.

For FY2027, the estimates are:

• +$0.9 million to the Education Fund
• -$10.8 million to the General Fund
• +$9.9 million to the Transportation Fund

These are budget mechanics, but they affect how the state absorbs the timing of tax changes.

Why this is happening now

The federal backdrop is the 2025 tax law, often described in Vermont discussions as H.R.1. It expanded business-friendly rules, including stock gain exclusions, expensing, and interest deductions.

Vermont officials worry those federal changes could weaken state revenue without producing enough local benefit.

That concern also appears in committee testimony. On January 15, 2026, Carl Davis of the Institute on Taxation and Economic Policy told lawmakers that expanded federal business preferences could erode state revenue.

The business community has taken a mixed view. The Vermont Chamber of Commerce has signaled both caution and acceptance. It also supports the larger in-state R&D credit as a partial tradeoff.

What immigrants and visa holders should watch

This bill is a state tax issue, but it can hit immigrant households in specific ways.

If you are on H-1B, L-1, O-1, or TN status, you may already be a U.S. tax resident under the green card or substantial presence rules. In that case, Vermont differences from federal law can affect your full-year state filing.

If you are an F-1 or J-1 student or trainee, you may still be a nonresident for federal tax purposes under the exempt individual rules in Publication 519. But Vermont-source wages, business income, or stock gains can still trigger Vermont filing duties.

Foreign founders and investors should pay close attention to:

• QSBS sales
• Pass-through income from Vermont businesses
• Federal §250 deductions
• R&E cost treatment
• Resident versus nonresident Vermont filing status

For federal forms and residency rules, see Publication 519, Publication 901, and the IRS forms library. If you claim treaty benefits, review the IRS Publication 519 PDF and confirm whether Vermont follows that treatment.

Status and next steps

As of March 29, 2026, H.933 (Miscellaneous tax bill) has been introduced by the House Committee on Ways and Means. The key fiscal analysis is JFO fiscal note ID 404738, dated March 16, 2026.

If the bill advances, affected taxpayers should take these steps:

• Review whether you claimed any of the four federal items for tax year 2025
• Flag Vermont add-backs for QSBS, §250, and accelerated depreciation
• Check whether your business is a “small business” for federal R&E rules
• Revisit 2026 estimated Vermont tax payments
• Keep records that separate federal and Vermont adjustments

If you changed visa status, became a green card holder, or moved into Vermont during the year, ask your preparer whether you need a part-year or dual-status approach. Federal residency rules often drive the starting point, but Vermont may not match every federal result.