Do I Have to Pay Rhode Island Retirement Taxes?

Rhode Island applies specific tax rules to retirement income. The state provides a tax exclusion for certain retirement income, potentially lowering the tax burden for eligible individuals. Understanding how the state treats different sources of retirement funds involves knowing which income is taxable and how to qualify for and apply the state’s special deductions.

Taxation of Common Retirement Income Sources

Social Security Benefits

Rhode Island taxes Social Security benefits only to the extent they are included in your federal Adjusted Gross Income (AGI). However, the state provides a full exemption on this income for taxpayers who have reached full retirement age and have a federal AGI below specific thresholds.

For most filers, the AGI limit is $104,200, and for joint filers, it is $130,250. If you meet the age and income requirements, your Social Security is not taxed by Rhode Island.

Pensions and Annuities

Distributions from private and public pension plans are considered taxable income in Rhode Island. This includes payments from defined benefit plans. Income received from annuities is also subject to state income tax.

Military service pensions are an exception and are fully exempt from Rhode Island’s personal income tax; this exemption is not affected by AGI limits.

IRA and 401(k) Distributions

Withdrawals from traditional retirement accounts like IRAs, 401(k)s, and 403(b)s are fully taxable at Rhode Island’s state income tax rates. The amount you withdraw is added to your income and taxed accordingly.

Conversely, qualified distributions from Roth IRAs and Roth 401(k)s are not taxed in Rhode Island. This aligns with federal rules, which require the account to be open for at least five years and the owner to be over age 59½ for distributions to be tax-free.

The Rhode Island Retirement Income Exclusion

Rhode Island offers a deduction that can reduce the amount of your retirement income subject to state tax. This exclusion directly lowers your Rhode Island taxable income by allowing you to subtract a portion of your qualifying retirement earnings.

To be eligible for this tax benefit, a taxpayer must meet three requirements:

• You must have reached your full retirement age as determined by the Social Security Administration.
• Your federal AGI for the 2024 tax year must be below $104,225 for single, head of household, or married filing separately statuses. The AGI threshold is $130,250 for those married filing jointly.
• You must have qualifying income from taxable pensions, annuities, or distributions from 401(k) or 403(b) plans. Distributions from IRAs are not eligible for this exclusion.

The maximum exclusion amount for the 2024 tax year is $20,000 per eligible taxpayer. A married couple filing jointly where both spouses meet all requirements could exclude up to $40,000 from their state income.

For example, a single retiree with a federal AGI of $90,000, including $30,000 from a taxable pension, is eligible. They can subtract $20,000 of their pension income, so only $10,000 of it is subject to Rhode Island income tax.

Calculating Your Rhode Island Taxable Income

The calculation for your Rhode Island taxable income begins with your federal AGI, which serves as the starting point for your state tax return. After applying the retirement income exclusion and any other required Rhode Island modifications, you arrive at your Rhode Island taxable income.

This final number is what the state’s tax rates, which range from 3.75% to 5.99%, are applied to in order to determine your tax liability.

Filing as a Rhode Island Retiree

To claim the retirement income exclusion, you must report it on your state tax return using Form RI-1040. The exclusion is not entered directly on Form RI-1040 but is claimed on a separate form, Schedule M: Rhode Island Modifications to Federal AGI.

On this schedule, you will report the exclusion amount as a subtraction modification. You will find a specific line on Schedule M for the “Modification for taxable retirement income from certain pension plans or annuities.” Here, you enter your calculated exclusion, up to the $20,000 limit per qualifying individual.

The total from Schedule M is then transferred to the main Form RI-1040, properly modifying your federal AGI before the final state tax is computed.