Vermont Tax Relief: OIC, Payment Plans & Levy Help

Vermont Tax Relief Overview

Owing Vermont state taxes is different from owing the IRS. The Vermont Department of Taxes (VDT) has its own rules, deadlines, and collection tools, and federal tax relief options do not automatically apply to Vermont state tax debt.

Vermont's Administrative Collection Powers

Since July 1, 2015, Vermont has had broad administrative collection powers under 32 V.S.A. §§ 3207 and 3208. The Department can issue administrative bank levies (no court suit required) and administrative wage garnishments. Collection action can proceed after the 60-day appeal period expires, so if you have received a notice, it's worth acting promptly.

Important: Vermont does have an Offer in Compromise (OIC) program. The Vermont Department of Taxes' OIC program, authorized under 32 V.S.A. § 5887(c) and administered under the Commissioner's broader compromise authority in 32 V.S.A. § 3201(a)(5), allows the Department to consider three types of offers — doubt as to collectability, doubt as to liability, and economic hardship. The first two grounds trace directly to the statutory text of § 5887(c); the economic hardship category is defined in VDT's own OIC Program Guide (GB-1160) as a practical basis for the Department's evaluation. The Commissioner's decision to reject an OIC is not subject to review.

Depending on your situation, you may need one or more of the following:

• An Offer in Compromise (OIC) — to settle for less than you owe
• A payment plan — to pay over time
• An appeal — if you received a deficiency notice you disagree with
• Penalty relief — if penalties make the balance impossible to pay
• Lien release or levy resolution — if collection action has started
• Filing help — if you have unfiled Vermont tax returns

If you run a business in Vermont and owe sales tax, meals and rooms tax, or withholding tax, the stakes are higher. Trust fund taxes are treated very seriously by VDT and can create personal liability for responsible persons under 32 V.S.A. §§ 5844 and 9703. Criminal penalties of up to 3 years imprisonment and $10,000 may apply for willful failure to withhold or remit amounts exceeding $500 in a calendar year.

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Vermont Tax Relief Options at a Glance

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What Vermont Tax Notice Did You Receive?

Select your notice type for a quick explanation of what it means and your options.

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What the Vermont Department of Taxes Can Do to Collect

If you owe Vermont state taxes and do not address the balance, the Vermont Department of Taxes has a broad range of collection tools. Since July 1, 2015, administrative attachment and garnishment powers have made Vermont collection actions faster than in many other states. Not every case reaches the most serious actions, but the longer a balance goes unpaid, the more options the state may use.

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Vermont does have an Offer in Compromise (OIC) program, which is a significant difference from many states. Under 32 V.S.A. § 5887(c), the Commissioner may compromise a tax liability on grounds of doubt as to liability or doubt as to collectability. In addition, VDT's own OIC Program Guide (GB-1160) recognizes a third basis — economic hardship — as a distinct type of offer the Department will evaluate, even though that ground is defined in program guidance rather than in the statutory text of § 5887(c) itself. The OIC program was added by Act 45 of 2011, effective May 24, 2011.

Three Types of Vermont OIC

Key Conditions for Vermont OIC

Important: OIC Rejection Is Final

The Commissioner's decision to reject an Offer in Compromise is not subject to review, meaning you cannot appeal a rejection to a court or tribunal. Make sure your OIC application is complete and well-documented before submitting. We will tell you if an OIC is not realistic for your case.

Source: Vermont Department of Taxes — OIC Program Guide (GB-1160) | 32 V.S.A. § 5887(c) | 32 V.S.A. § 3201(a)(5)

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If you cannot pay your Vermont state tax balance in full, a payment plan (installment agreement) may be an option. Payment plans are based on your ability to pay, as determined by your financial statements.

Key Conditions for Vermont Payment Plans

Source: Vermont Department of Taxes — Collections

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Which Vermont Tax Relief Option Fits Your Situation?

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Penalty relief differs from a payment plan or an OIC. Penalty relief asks Vermont to reduce or remove penalties when allowed under state rules.

Vermont civil penalties for failure to file may be removed upon a determination of "reasonable cause" under 32 V.S.A. § 3202(b)(1). Circumstances meriting waiver include causes that arise despite the ordinary care and prudence of the taxpayer, such as:

Mail delivery problems; death or serious illness; unavoidable absence; casualty or natural disaster; inability to obtain necessary records; or reliance on erroneous advice of Department personnel.

Important Requirements

The burden of proving reasonable cause is on the taxpayer. Interest abatement is more restrictive — grounds for waiving interest or base tax are limited to extraordinary circumstances and may be waived only by the Commissioner, Deputy Commissioner, General Counsel, and Directors. Failure to file penalty is 5% per month, up to 25% maximum, with a minimum penalty of $50 if a return isn't filed within 60 days after the due date. Failure to pay the penalty is 1% per month for personal, estate, trust, and C-corporation income tax, and 5% per month for other tax types, up to a maximum of 25%.

Approval is discretionary. No guarantee of penalty waiver.

Source: 32 V.S.A. § 3202 | VDT Collections

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Penalty Relief vs. Payment Plan vs. OIC

A penalty waiver, a payment plan, and an OIC are separate processes. A payment plan does not automatically remove penalties. Penalty relief must be requested separately and approved based on reasonable cause. Even if penalties are waived, the underlying tax and interest must still be paid. An OIC may cover penalties along with the tax liability.

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A Notice of Deficiency from the Vermont Department of Taxes is a serious step. Once issued, it becomes the official amount Vermont says you owe. If you ignore it, your options to challenge the balance may be severely limited.

Under 32 V.S.A. § 5883, you have 60 days after the mailing of a notice of deficiency, denial of refund, or assessment of penalty or interest to petition the Commissioner for a determination.

60-Day Deadline

The appeal deadline is 60 days from the date the notice is mailed. Missing this deadline makes the assessment a fixed liability, and you are barred from further protest at any level under 32 V.S.A. § 5887.

Collection Stay During Appeal

Under 32 V.S.A. § 5886, the collection of a deficiency is stayed if you file a petition within 60 days. The collection remains in effect for 30 days after notification of the Commissioner's determination. If you appeal to the Superior Court within 30 days of the determination, collection stays pending judgment.

Superior Court Appeal

Under 32 V.S.A. § 5885(b), you may appeal a determination by the Commissioner to the Washington Superior Court or the Superior Court of the county where you reside or have a place of business, within 30 days after the Commissioner's determination.

Exclusive Remedy

Under 32 V.S.A. § 5887, the petition for determination and appeal process is the exclusive remedy for contesting a tax assessment. If no appeal is filed within 60 days, the assessment becomes final.

Source: 32 V.S.A. § 5883 | 32 V.S.A. § 5885 | 32 V.S.A. § 5887

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A tax lien is a public claim filed by the state against your property. Vermont has different lien rules depending on whether the tax is assessed against real estate or personal property.

Real Estate Tax Liens (15 Years)

Under 32 V.S.A. § 5061(a), taxes lawfully assessed upon real estate constitute a first lien underlying all mortgages, attachments, liens, or other encumbrances. The lien remains in force for 15 years and may be enforced separately against each parcel.

Personal Property Tax Liens (2 Years)

Under 32 V.S.A. § 5072, tax liens on personal property remain valid for up to two years from the date the notice is filed. The lien has priority over any other lien having priority in time and is not enforceable against a bona fide purchaser for value without actual notice.

State Tax Lien on All Property

Under 32 V.S.A. § 5895, if any person neglects or refuses to pay tax after notification or assessment, the aggregate amount due shall be a lien in favor of Vermont upon all property and rights to property, whether real or personal. The lien arises at the time of assessment and continues until the liability is satisfied or becomes unenforceable.

Lien Release

Under 32 V.S.A. § 5076, the tax collector shall discharge a tax lien upon payment of the taxes due, and a certificate of release is given by the Commissioner.

Vermont Lien Duration Summary

Source: 32 V.S.A. § 5061 | 32 V.S.A. § 5072 | 32 V.S.A. § 5895

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Since July 1, 2015, the Vermont Commissioner of Taxes has had the power to attach tangible and intangible property of a taxpayer without filing a court suit. This includes bank accounts under 32 V.S.A. § 3207, and it makes Vermont's bank levy process faster than in many other states.

Key Facts About Vermont Bank Levies

A 30-day demand notice must be sent before attachment. When a notice of attachment is issued to a financial institution, the institution generally must hold the attached funds for a set period before remitting to the Commissioner, giving the taxpayer a window to act; the taxpayer may petition for a hearing within a limited window after the attachment notice. (The specific hold-period and hearing-window figures from the prior published version have been retained here pending direct confirmation against legislature.vermont.gov — see the flag in the "Administrative Attachment" section above and the summary note at the end of this article.) No court suit is required — administrative attachment has been effective since July 1, 2015 (Act 57 of 2015); prior to this, the Department had to file a civil suit to obtain a judgment. Attachment may be initiated any time after 90 days have run from the end of any applicable administrative appeal period on the underlying tax liability, per 32 V.S.A. § 3201(a)(9).

Act Quickly If Your Bank Account Is Attached

The hold period gives you a limited window to act. During this time, the bank cannot release funds to you unless the Commissioner releases the attachment. Petitioning for a hearing promptly is critical.

Source: 32 V.S.A. § 3207 | 32 V.S.A. § 3201(a)(9)

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Since July 1, 2015, the Vermont Commissioner has had administrative wage garnishment authority under 32 V.S.A. § 3208. The Commissioner may garnish a taxpayer's earnings subject to exemptions. The Commissioner must demand payment and notify the taxpayer at least 30 days before garnishment begins, by first-class mail to the taxpayer's last known address.

How Much Is Protected from Vermont Garnishment?

Under 32 V.S.A. § 3208(a) and 12 V.S.A. § 3170, wage garnishment is subject to exemptions. The greater of 80% of disposable earnings or 40 times the federal minimum hourly wage is exempt from garnishment.

Vermont Garnishment Exemption Calculation

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Disposable earnings mean earnings remaining after legally required deductions and child support garnishments.

Key Facts About Vermont Wage Garnishment

A demand notice must be issued at least 30 days before garnishment begins. Garnishment is suspended while an appeal is pending. The employer is immune from liability for compliance with a garnishment order, but an employer who fails to withhold and transmit garnished earnings may be liable for such amounts. No taxpayer may be discharged from employment on account of garnishment.

Source: 32 V.S.A. § 3208 | 32 V.S.A. § 3201 | 12 V.S.A. § 3170

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If you have not filed Vermont tax returns for one or more years, that can block most resolution options. VDT may estimate your tax and issue assessments based on those estimates — sometimes higher than what you actually owe.

Filing accurate returns can sometimes reduce an incorrect balance, but do not rush or file bad returns. It's better to get the returns prepared correctly with the right income, deductions, and Vermont credits.

Why Filing Matters

Unfiled returns block payment plan eligibility. VDT may issue substitute returns with higher tax than you actually owe. Penalty relief generally requires all returns to be filed. The statute of limitations on collections may not start until a return is filed, and no time limitation exists for assessment when no return was filed. OIC eligibility requires being current on all filing requirements.

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Business tax debt is a higher risk than individual income tax debt in Vermont. Sales tax, meals and rooms tax, and income withholding tax are trust fund taxes — money you collected or withheld that belongs to the state — and VDT takes these very seriously.

Responsible Person Warning: Personal Liability for Trust Fund Taxes

Sales Tax: Under 32 V.S.A. § 9703(a), every person required to collect sales tax who fails to pay it is personally liable. If the person is a corporation or entity, liability extends to any officer or agent under a duty to collect and transmit the tax. All sales tax collected is deemed held in trust for the State of Vermont.

Withholding Tax: Under 32 V.S.A. § 5844(a), any person who fails to withhold income tax or pay it is personally liable. If a corporation or entity, liability extends to any officer or agent under a duty to withhold and transmit. All amounts withheld are deemed held in trust for the State.

Criminal Penalties: Under 32 V.S.A. § 5844(c), a person who knowingly fails to file a return, withhold, or remit withholding tax faces up to 1 year imprisonment or a $1,000 fine, or both. Where the amount withheld or required to be withheld exceeds $500 in a single calendar year, and the failure was with intent to evade the tax, the penalty rises to up to 3 years imprisonment or a $10,000 fine, or both.

Key points:

• Personal liability extends to officers, agents, and anyone under a duty to collect/transmit
• All trust fund taxes collected or withheld belong to the State and must be recorded in a ledger account
• Criminal penalties apply for willful failure to withhold or remit
• The Commissioner may also treat salesmen, representatives, or canvassers as jointly and severally responsible under 32 V.S.A. § 9704

Meals and Rooms Tax

Under 32 V.S.A. § 9280(a), any operator who fails to collect the required meals and rooms tax or pay it is personally liable. If a corporation or entity has liability extends to officers or agents under a duty to collect and transmit. Meals and rooms tax collected is also held in trust per § 9280(b).

License and Contract Consequences

Failure to pay Vermont taxes may result in revocation of business and/or professional licenses, suspension of authority to do business in Vermont, and a hold on final contract payments — no state agency may make final payment under a contract unless the person obtains a certificate of good standing from the Commissioner (32 V.S.A. § 3113(e)).

Vermont Sales Tax Debt

Unpaid sales tax can lead to license revocation, penalties, aggressive collection action, and personal liability for responsible persons under § 9703. Sales tax collected is held in trust for the State.

Vermont Payroll / Withholding Tax Debt

Withholding tax not remitted can trigger personal liability under § 5844 and further collection action. Criminal penalties up to 3 years and $10,000 may apply where the amount exceeds $500, and intent to evade is shown.

Vermont Meals and Rooms Tax Debt

Unpaid meals and rooms tax creates personal liability for operators, responsible officers, or agents under § 9280.

Source: 32 V.S.A. § 5844 | 32 V.S.A. § 9703 | 32 V.S.A. § 9280

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Vermont Taxpayer Advocate & Extraordinary Relief

Under 32 V.S.A. § 3206, the Vermont Taxpayer Advocate may make a written recommendation for extraordinary relief when Vermont tax laws apply unfairly or result in significant hardship, and the taxpayer has no available appeal rights. Effective July 1, 2012.

Important: The Advocate's decision to recommend or not recommend is final and not subject to review. The Commissioner may choose to act on the recommendation but is not required to. This is a last-resort option when all other appeal rights have been exhausted.

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Vermont Voluntary Disclosure Program

Vermont offers a voluntary disclosure program. For legitimate claims for sales, corporate, or business income tax, prior-period exposure is limited to 3 years (or the date the exposure was established, whichever is shorter). All penalties may be waived if tax and interest are paid.

Key requirement: The taxpayer must not have been contacted by the Department with an audit inquiry prior to making the request.

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Vermont Statute of Limitations

(The 6-year collection statute figures for §§ 5892 and 9812 are retained from the prior published version pending direct confirmation against legislature.vermont.gov.)

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Vermont Tax Relief Tools & Calculators

Use our Vermont calculators to estimate penalties, interest, or garnishment risk. Then request a review if the numbers show the balance is growing or collection is already active.

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Vermont Government Resources

These are the official Vermont sources for tax information, payment plans, appeals, and rules. Always check the official source for the most current information.

• Vermont Department of Taxes (VDT) — Official tax agency portal
• VDT Collections — Collection information and payment plan guidance
• VDT Offer in Compromise (OIC) Program — OIC rules and forms
• VDT Payment Plan Information — Payment plan guidance
• VDT Top 100 Delinquent Taxpayer Report — Public delinquency list
• 32 V.S.A. § 3201 — Department of Taxes/Commissioner authority
• 32 V.S.A. § 3207 — Administrative attachment (bank levy)
• 32 V.S.A. § 3208 — Administrative garnishment
• 32 V.S.A. § 5883 — Petition for determination (appeals)
• 32 V.S.A. § 5887 — Exclusive remedy; OIC authority
• 32 V.S.A. § 5061 — Real estate tax lien (15 years)
• 32 V.S.A. § 5072 — Personal property tax lien (2 years)
• 32 V.S.A. § 3202 — Penalties and interest
• VDT Forms

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Not Sure What to Do With Your Vermont Tax Situation?

Select the card that matches your situation to jump to the relevant section.

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Frequently Asked Questions About Vermont Tax Relief

Does Vermont have an offer in compromise?

Yes. Under 32 V.S.A. § 5887(c), the Commissioner may compromise a tax liability on grounds of doubt as to liability or doubt as to collectability. VDT's OIC Program Guide also recognizes economic hardship as a third basis the Department will consider. The Commissioner's decision to reject an OIC is not subject to review, and the tax liability must be final with the taxpayer current on all filing requirements.

Can Vermont levy my bank account?

Yes. The Vermont Commissioner of Taxes may attach tangible and intangible property of a taxpayer, including bank accounts, by transmitting a notice to a financial institution under 32 V.S.A. § 3207. A 30-day demand notice must be sent first, and no court suit is required — this administrative power has been effective since July 1, 2015. The taxpayer may petition for a hearing after the attachment notice.

How much of my wages are protected from garnishment in Vermont?

Under 32 V.S.A. § 3208 and 12 V.S.A. § 3170, the greater of 80% of your disposable earnings or 40 times the federal minimum hourly wage is exempt from garnishment. At the current federal minimum wage of $7.25/hour, 40x works out to $290 per week (about $1,257/month). The Commissioner must send a demand notice at least 30 days before garnishment begins.

How long is a Vermont real estate tax lien?

A Vermont real estate tax lien remains in force for 15 years from the date of assessment under 32 V.S.A. § 5061(a), and it constitutes a first lien underlying all mortgages, attachments, liens, or other encumbrances. Personal property tax liens remain valid for up to two years from the date the notice is filed under 32 V.S.A. § 5072.

Can I get a payment plan for Vermont state taxes?

Yes. The Vermont Department of Taxes offers payment plans for taxpayers unable to pay in full. Debts are generally expected to be paid within one to two years, based on the taxpayer's ability to pay as shown on financial statements (Form TAX-692 for businesses; Form TAX-693 for wage earners/self-employed). OIC payment plans can extend up to 36 months. Interest continues to accrue during the plan, and federal refunds may still be intercepted through TOP.

Can I appeal a Vermont tax assessment?

Yes. Taxpayers have 60 days after the mailing of a notice of deficiency, denial of refund, or assessment of penalty or interest to petition the Commissioner for a determination under 32 V.S.A. § 5883. If you disagree with the Commissioner's determination, you may appeal to the Superior Court within 30 days under 32 V.S.A. § 5885(b). Collection is stayed during an active appeal. If no appeal is filed within 60 days, the assessment becomes a fixed liability and you are barred from further protest.

Can Vermont garnish wages for state taxes?

Yes. The Vermont Commissioner may garnish a taxpayer's earnings under 32 V.S.A. § 3208, after sending a demand notice at least 30 days in advance. Garnishment is suspended while an appeal is pending, and the employer is immune from liability for compliance. The greater of 80% of disposable earnings or 40 times the federal minimum wage is exempt from garnishment.

Can Vermont waive penalties?

Yes. The penalty for failure to file may be removed if the taxpayer affirmatively shows the failure was due to reasonable cause under 32 V.S.A. § 3202(b)(1). Circumstances meriting waiver include mail delivery problems, death or serious illness, unavoidable absence, casualty or natural disaster, inability to obtain records, or reliance on erroneous advice of Department personnel. The burden of proof is on the taxpayer.

What if my Vermont tax debt is from sales tax or payroll withholding?

Sales tax and payroll withholding are trust fund taxes in Vermont. Under 32 V.S.A. § 5844 (withholding) and § 9703 (sales tax), any person required to collect or withhold tax who fails to pay it is personally liable, and liability extends to a corporation's officers or agents under a duty to collect and transmit. All amounts collected or withheld are deemed held in trust for the State of Vermont. Criminal penalties of up to 3 years imprisonment and a $10,000 fine may apply where the amount exceeds $500, and there is intent to evade the tax.

Is Vermont aggressive about tax collection?

Vermont's administrative collection powers allow the state to move faster than many others. Since July 1, 2015, the Vermont Department of Taxes has had broad administrative enforcement authority, including liens, administrative bank levies (with a 30-day demand notice and no court suit required), wage garnishment, license revocation, public delinquency lists (Top 100 Delinquent Taxpayer Report), federal refund interception (Treasury Offset Program), vendor payment holds, and assignment to outside collection agencies. Collection action can proceed after the 60-day appeal period expires.

Does a Vermont payment plan stop collection?

Not entirely. Federal refunds may still be intercepted through the Treasury Offset Program while on a payment plan, and the Department may still file liens. However, if you file a petition for determination within 60 days of a deficiency notice, collection of the deficiency is stayed until 30 days after the Commissioner's determination, and it stays pending judgment if you appeal to the Superior Court within 30 days of that determination.

Can I face criminal penalties for Vermont tax debt?

For most tax debt, non-tax collection is a civil matter. However, under 32 V.S.A. § 5844(c), a person who knowingly fails to file, withhold, or remit withholding tax faces up to 1 year imprisonment or a $1,000 fine, or both. Where the amount exceeds $500 in a calendar year, and the failure is with intent to evade the tax, the penalty rises to up to 3 years imprisonment or a $10,000 fine, or both. This applies specifically to payroll withholding tax. If you are facing a criminal tax matter, consult a qualified attorney immediately.

Sources Used

These are the official government sources used for this page. Always check the current official source for the most up-to-date information.

• [1] Vermont Department of Taxes — Collections: tax.vermont.gov/help/collections ↗
• [2] 32 V.S.A. § 3202: Penalties and interest: legislature.vermont.gov ↗
• [3] 32 V.S.A. § 3207: Administrative attachment (bank levy): legislature.vermont.gov ↗
• [4] 32 V.S.A. § 3208: Administrative garnishment: legislature.vermont.gov ↗
• [5] 32 V.S.A. § 5887(c): Offer in Compromise: legislature.vermont.gov ↗ | VDT OIC Program ↗
• [6] 32 V.S.A. § 3201(a)(5): Commissioner's compromise authority: legislature.vermont.gov ↗
• [7] 32 V.S.A. § 5883: Petition for determination: legislature.vermont.gov ↗
• [8] 32 V.S.A. § 5061(a): Real estate tax lien (15 years): legislature.vermont.gov ↗
• 32 V.S.A. § 5072: Personal property tax lien (2 years): legislature.vermont.gov ↗
• 32 V.S.A. § 5895: State tax lien on all property: legislature.vermont.gov ↗
• 32 V.S.A. § 5885: Appeal to Superior Court: legislature.vermont.gov ↗
• 32 V.S.A. § 5886: Collection stay during appeal: legislature.vermont.gov ↗
• 32 V.S.A. § 5844: Withholding tax responsible person liability: legislature.vermont.gov ↗
• 32 V.S.A. § 9703: Sales tax responsible person liability: legislature.vermont.gov ↗
• 32 V.S.A. § 9280: Meals and rooms tax responsible person liability: legislature.vermont.gov ↗
• 32 V.S.A. § 3206: Taxpayer Advocate: legislature.vermont.gov ↗
• 32 V.S.A. § 3301: Collections Unit: legislature.vermont.gov ↗
• 32 V.S.A. § 5892: Income tax collection statute of limitations (6 years): legislature.vermont.gov ↗
• 32 V.S.A. § 9812: Sales tax collection statute of limitations (6 years): legislature.vermont.gov ↗
• 12 V.S.A. § 3170: Garnishment exemptions: legislature.vermont.gov ↗

Disclaimer: This page provides general information about Vermont state tax collection procedures and is not legal advice. Tax laws and agency procedures change. Always consult the official Vermont Department of Taxes website or a qualified tax professional for advice specific to your situation. No guarantee of any particular outcome is expressed or implied. Approval for payment plans, Offers in Compromise, penalty relief, and other resolutions is discretionary. The Commissioner's rejection of an OIC is not subject to review.