Filing Taxes for a Deceased Person in Vermont: Final Return, Estate EIN, and Form FIT-161

The moment someone dies in Vermont, two separate tax obligations come into existence simultaneously — and most executors only know about one of them. The first is the decedent's final individual income tax return. The second is the estate's own income tax return, which kicks in the moment the estate starts earning so much as $100.

Missing either filing creates penalties that run from the day the return was due. Here is the full picture.

Two Tax Lives, Two Sets of Returns

Think of it this way: the decedent had a tax life as an individual. That tax life ends at midnight on the date of death. From that moment forward, any income generated by the decedent's assets belongs not to the person but to the estate — which is now its own separate taxable entity under both federal and Vermont law.

This split creates two distinct filing obligations:

1. The Final Individual Return (Vermont Form IN-111)

This return covers all income the decedent earned from January 1 of the tax year through the exact date of death. Wages earned, IRA distributions taken, rental income received, Social Security payments — everything that landed while they were still alive goes on this return.

The deadline is the standard April 15, regardless of when in the year the death occurred. If the decedent died in November, the return is still due April 15 of the following year.

If the decedent was married, the surviving spouse can elect to file a joint return for that year. This often produces a more favorable tax outcome and is worth evaluating.

If a refund is owed to the decedent, the executor cannot simply cash the check. You must attach federal Form 1310 (Statement of a Person Claiming Refund Due a Deceased Taxpayer) to the return to legally establish your authority to receive the funds on behalf of the estate.

2. The Estate's Fiduciary Income Tax Return (Vermont Form FIT-161)

After the date of death, the estate itself may earn income during the months or years it takes to settle everything. Bank accounts accrue interest. Investment accounts pay dividends. Rental properties generate rent. IRAs get cashed in during administration. All of that belongs to the estate.

Vermont requires Form FIT-161 if the estate meets any one of these triggers:

• Earns more than $100 in Vermont income
• Receives $1,000 or more in gross income from Vermont sources
• Is required by the IRS to file a federal Form 1041

That $100 threshold is not a typo. A checking account with $50,000 earning 0.2% interest generates $100 in a year. Nearly every estate with a bank account open during administration will cross this threshold and owe a Vermont fiduciary return.

The FIT-161 deadline follows the estate's fiscal year. Estates can choose their own fiscal year end (any 12-month period ending on the last day of any month), which gives some flexibility in timing the first filing.

Vermont fiduciary income is taxed at progressive rates: 3.35% on the first $3,300, scaling up to 8.75% on income over $11,900 (2026 rates). If the estate generates substantial ongoing income, quarterly estimated payments are required using Form FIT-165 — failure to pay quarterly can result in underpayment penalties on top of the year-end balance due.

Get an EIN Before You Open an Estate Account

Here is a step many executors skip at the start: before you can open an estate bank account, you need a federal Employer Identification Number (EIN) for the estate.

You cannot use the decedent's Social Security Number for any post-death income. The moment income starts flowing after death, it belongs to the estate — and the estate needs its own tax ID to receive it.

Getting an EIN is free and takes about 15 minutes through the IRS website (irs.gov). Select "Estate" as the entity type and use the decedent's name followed by "Estate" (e.g., "Estate of Jane Smith"). Once you have the EIN:

• Open a dedicated estate checking account at any Vermont bank using the EIN
• Route all estate income into that account
• Pay all estate expenses from that account
• This creates a clean paper trail for the FIT-161 return and the final probate accounting

If the estate will have multiple financial accounts (brokerage, bank, rental income), a single EIN covers all of them. You only need one.

The IRS 1041 Connection

If the estate is required to file a federal Form 1041 (U.S. Income Tax Return for Estates and Trusts), the Vermont FIT-161 filing requirement is automatically triggered — regardless of how much Vermont income the estate actually earned.

There is also a compliance trap worth knowing about: if the IRS later adjusts the estate's federal 1041 — audits it, changes the income figure, or corrects a capital gains calculation — you must file an amended Vermont FIT-161 within 60 days of being notified by the IRS. This obligation exists even if the original statute of limitations has long since passed. Executors who have closed the estate and stopped thinking about it can still receive an IRS notice and find themselves scrambling to file an amended Vermont return.

Capital Gains Inside the Estate

When the estate sells assets — particularly appreciated Vermont real estate — the capital gain belongs to the estate and is reported on the FIT-161. Vermont uses Schedule FIT-162 to calculate any capital gains exclusions available to the estate.

If there is a step-up in basis (the asset's basis was reset to fair market value at date of death), the taxable gain may be small or zero even on a substantial sale. But the calculation still needs to be made and documented. See selling inherited property in Vermont for the full breakdown on how step-up basis and the property transfer tax interact.

What Vermont's Penalties Look Like

The Vermont Department of Taxes is not forgiving about late filings:

• Failure to file: 5% per month on the unpaid tax, up to a 25% maximum
• Failure to pay: 1% per month on the unpaid balance
• Late filing fee: $50 immediate penalty if the return is filed more than 60 days past its due date, even if no tax is owed
• Interest rate: 7.75% for 2026 on both underpayments and overpayments

The failure-to-file penalty is five times steeper than the failure-to-pay penalty. If you can't complete the return on time, file an extension first and pay your best estimate of what's owed. The extension prevents the 5%/month penalty from running.

The Link to Probate Closure

Neither the FIT-161 nor the IN-111 closes in isolation. Vermont's probate court will not finalize the estate — will not discharge the executor's bond — until the Vermont Department of Taxes issues a Form E-2A tax clearance confirming that all income taxes, fiduciary taxes, and estate taxes (if applicable) have been filed and paid.

This means the timeline for closing probate is directly controlled by how quickly you file and pay these returns. If the FIT-161 is late, the E-2A is delayed. If the E-2A is delayed, the estate stays open, your bond stays active, and you continue carrying fiduciary liability.

The Vermont Final Tax & Estate Tax Guide maps out this exact sequence — IN-111, EIN, FIT-161, estimated payments, and the E-2A clearance — with the specific deadlines and forms required at each step.

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