Does Rhode Island Tax Your Pension?
Get clarity on Rhode Island's taxation of pension income. Understand the state's approach to taxing your retirement.
Understanding state income taxes on retirement income is a significant concern for financial planning. For those considering or currently residing in the Ocean State, understanding how Rhode Island taxes pension income is an important aspect of retirement planning. While pension income is generally subject to state income tax in Rhode Island, specific modifications and exemptions can significantly reduce or even eliminate this tax liability for eligible taxpayers. This article aims to clarify the state’s approach to pension taxation and outline the criteria for potential exemptions.
Understanding Rhode Island’s General Approach to Pension Taxation
Rhode Island generally considers pension income as taxable for state income tax purposes. This means that, by default, amounts received from pensions and other retirement plans are included in a taxpayer’s adjusted gross income (AGI) and are subject to the state’s income tax rates.
The state’s tax framework is designed to align with federal income tax principles, where pension benefits are initially treated as income. However, Rhode Island law includes specific provisions that allow for modifications to this general rule. These provisions can offer substantial relief, ensuring that not all pension income is fully taxed, especially for those who meet certain qualifications.
Determining Eligibility for Rhode Island Pension Exemptions
Rhode Island offers a significant “Pension and Annuity Income Modification” that allows eligible taxpayers to exclude a portion of their retirement income from state taxation. To qualify for this exemption, individuals must meet specific age and income requirements. For tax years beginning on or after January 1, 2023, taxpayers can exclude up to $20,000 of qualifying taxable pension and/or annuity income from their Rhode Island personal income tax. This modification applies on an individual basis, meaning that for married couples filing jointly, a combined total modification of up to $40,000 may be available if both spouses qualify.
A key eligibility criterion is reaching “full retirement age” as defined by the Social Security Administration. This age varies based on birth year, typically ranging from 66 to 67 years old.
Additionally, an individual’s federal adjusted gross income (AGI) must fall below certain thresholds to claim this exemption. For the 2025 tax year, the AGI limit for single filers and those filing as head of household is $104,200. For married individuals filing jointly, the AGI limit is $130,250. Rhode Island’s tax exemptions follow an “all-or-nothing” rule, meaning exceeding the AGI limit by even a small amount will result in the loss of the entire exemption.
Military pensions receive a distinct and complete exemption from Rhode Island state taxes. For tax years beginning January 1, 2023, military service pensions are fully exempt from Rhode Island Personal Income Tax, irrespective of the taxpayer’s age or income level. This specific modification, outlined in R.I. Gen. Laws § 44-30-12, allows taxpayers to subtract the full amount of their military service pension benefits included in their federal AGI when calculating their Rhode Island modified federal AGI. This comprehensive exemption continues for surviving spouses, providing a lasting benefit.
Identifying Taxable and Exempt Retirement Income Sources
Rhode Island tax law specifies which retirement income sources qualify for the “Pension and Annuity Income Modification.” Income from traditional defined benefit pension plans, 401(k) plans, 403(b) plans, 457(b) plans, and annuities are generally eligible for this exemption, provided all other criteria are met. This also includes income from private-sector pensions, government pensions (both state and federal, such as Civil Service Retirement System and Federal Employees Retirement System), and the Federal Thrift Savings Plan.
Conversely, certain types of retirement income are explicitly excluded from this specific pension exemption. Distributions from Individual Retirement Accounts (IRAs), including traditional, Roth, SEP, and SIMPLE IRAs, do not qualify for the Rhode Island pension and annuity tax break. While Social Security benefits are also a form of retirement income, they are subject to their own separate exemption rules in Rhode Island, which depend on age and AGI thresholds, and are not part of the pension and annuity modification.