Does Rhode Island Have State Income Tax? What You Need to Know

Rhode Island’s tax system affects residents, workers, and business owners. Understanding state income taxes can help you plan financially and avoid surprises during tax season.

This article covers Rhode Island’s income tax, including who needs to file, current tax rates, and what happens if you don’t pay.

Whether Rhode Island Levies Income Tax

Rhode Island imposes a state income tax on residents and certain nonresidents with Rhode Island-sourced income. The state follows a progressive tax structure, meaning rates increase as income rises.

Taxable income includes wages, salaries, self-employment earnings, and certain investment gains. Rhode Island generally follows federal definitions of taxable income, though state-specific deductions and credits can reduce the amount owed.

Employers withhold state income tax from employees’ paychecks, while self-employed individuals and those with additional income not subject to withholding must make estimated tax payments throughout the year.

Residency and Filing Obligations

Filing requirements depend on residency status and income sources. Rhode Island classifies taxpayers as residents, part-year residents, or nonresidents with Rhode Island-sourced income.

A resident is someone who maintains a permanent home in Rhode Island or spends more than 183 days in the state. Residents must file a state income tax return if their gross income meets the federal filing threshold. All income, including earnings from outside Rhode Island, must be reported.

Part-year residents—those who move into or out of Rhode Island during the tax year—must file a return if they earned income while living in the state. They are taxed only on income received during their residency period.

Nonresidents who earn wages, operate a business, or receive rental income from Rhode Island must file a state tax return. Only income derived from Rhode Island activities is taxed. To prevent double taxation, nonresidents can claim credits for taxes paid to their home states on the same income.

Tax Brackets and Rates

Rhode Island has a progressive tax structure with three brackets: 3.75%, 4.75%, and 5.99%. For 2024, the lowest rate applies to taxable income up to $74,600 for single filers and $149,200 for married couples filing jointly. The 4.75% rate applies to income between $74,600 and $171,850 for individuals and between $149,200 and $343,700 for joint filers. The highest rate of 5.99% applies to income exceeding these amounts. These brackets are adjusted annually for inflation.

Only the portion of income exceeding each threshold is taxed at the higher rate. For example, a single filer with $100,000 in taxable income pays 3.75% on the first $74,600 and 4.75% on the remaining $25,400.

Rhode Island offers tax credits and deductions to reduce tax liability. The Property Tax Relief Credit provides relief for eligible residents, while the Earned Income Credit is partially refundable. Deductions for retirement income and education expenses can also lower taxable income.

Calculating Taxable Income

Taxable income in Rhode Island starts with federal adjusted gross income (AGI). While the state generally follows federal tax law, certain adjustments are required. For example, tax-exempt bond interest from other states must be added back, while Social Security benefits for qualifying taxpayers may be subtracted.

Rhode Island does not allow separate itemized deductions from the federal return. Taxpayers who take the federal standard deduction must do the same for state purposes. However, the state offers modifications such as deductions for contributions to Rhode Island’s 529 college savings plan and exemptions for certain retirement income, including military pensions.

Handling Taxes if You Work in Another State

Rhode Island residents working in another state must report all earnings on their state return but can claim a credit for taxes paid elsewhere to avoid double taxation. The credit is based on the lesser of the tax paid to the other state or the amount Rhode Island would have assessed on the same income.

For example, if a Rhode Island resident earns $50,000 in Massachusetts and pays $2,500 in Massachusetts state tax, they can claim a credit up to the amount Rhode Island would have taxed on that income. If the other state’s tax rate is lower than Rhode Island’s, the taxpayer may still owe the difference.

Nonresidents working in Rhode Island must file a nonresident return and pay tax on earnings sourced from the state. Employers often withhold Rhode Island taxes for nonresident employees, but individuals should verify their withholding to avoid underpayment issues. Those working remotely may have additional considerations, as tax liability depends on where work is physically performed rather than where an employer is based.

Consequences of Not Filing or Underpaying

Failing to file a Rhode Island state income tax return or underpaying taxes can result in penalties, interest charges, and enforcement actions. The state may conduct audits, garnish wages, or place liens on assets to collect unpaid taxes.

Late filers face a penalty of 5% per month on the unpaid balance, up to a maximum of 25% of the total tax due. Interest accrues on unpaid amounts at a rate set annually by the state, based on the federal short-term rate plus 2%. Significant underreporting or intentional tax evasion can lead to additional penalties, including potential criminal charges.

Rhode Island offers payment plans for those unable to pay their tax bill in full. The Offer in Compromise program allows eligible taxpayers to settle their debt for less than the full amount owed. Seeking professional tax advice can help individuals explore these options and avoid escalating penalties.