by Robert Rich
Two years ago the Legislature began penalizing self-employed Vermonters with higher property taxes by taking away their deduction for retirement plan contributions in calculating their property tax adjustment. Because the property tax adjustment (credit) system is so complicated, it is difficult to readily measure the increase in property tax for self-employed Vermonters as a result of this unfair legislation. In essence it means if you are an employee with W-2 wages and qualify for a property tax adjustment, you pay a lower property tax than a self-employed Vermonter with the exact same income. This is because the Legislature allows employees a deduction for retirement contributions as high as $16,500, or $22,000 if age 50 or older. However, if you are self-employed and contribute to your retirement plan, your deduction is zero.
- Two taxpayers, one a W-2 employee, the other self-employed, both with identical income
- Both taxpayers made contributions of $15,000 to their respective retirement plans
- Property tax bills for both taxpayers were identical (before any credit)
Employee received property tax credit 14.5 times higher than the self-employed taxpayer ($1,873 vs. $129)
This is one example, but the fact is that every self-employed Vermonter who contributes to a retirement plan and is eligible for a property tax credit is discriminated against with a higher property tax under this law. It even unfairly eliminates some from the program altogether because without the retirement deduction their income is above the maximum to qualify.
Good tax policy, like good government should be transparent and fair. As someone who prepares hundreds of tax returns each year I can attest that Vermont’s property tax credit system is neither. Notwithstanding that the property tax credit system is already oppressively complicated, it is unclear why the Legislature thinks it fair to single out one group of working Vermonters for higher property tax. Indeed self-employed Vermonters deserve the same treatment under this system as any other working Vermonter. Investigated far enough you will find that the Legislature often makes these types of decisions based not on considerations of equity and fairness, but on their impact on tax coffers.
If you agree this situation is unfair and would like to make your voice heard, please contact your legislator and ask to have this situation corrected. In the meantime, if anyone would like an example of how someone can live in a $500,000 home, pay their money manager $10,000, and have more than 75% of their property tax paid for them, I can show you how it is done in Vermont.
Robert Rich Tax & Financial Services