How to Handle Rhode Island Withholding

Rhode Island withholding tax is a pay-as-you-go system for collecting state income tax from employee wages. Employers are required to deduct a portion of each employee’s earnings per paycheck and remit it to the state. This process ensures employees meet their tax obligations gradually rather than in a single lump sum. The responsibility for accurately withholding and submitting these funds rests with the employer.

Employer Registration and Employee Setup

Before an employer can legally withhold state income tax, they must establish an account with the Rhode Island Division of Taxation. This is done by completing the Business Application and Registration Form online. This registration provides the business with a Withholding Account ID, which is the company’s Federal Employer Identification Number (FEIN) and is required for all subsequent filings.

Once registered, the employer must gather correct information from each employee using Form RI W-4, the “Employee’s Withholding Allowance Certificate.” The federal Form W-4 cannot be used for Rhode Island withholding purposes. Employers must provide this form to new hires and keep the completed certificate with their payroll records.

On this form, an employee declares the number of personal allowances they are claiming, including for themselves, a spouse, and any dependents. An employee can also request that an additional dollar amount be withheld from each paycheck. An employee may claim “EXEMPT” status if they had no tax liability in the prior year and expect none in the current year, which must be reaffirmed annually.

The choices on the RI W-4 directly influence the amount of tax withheld and an employee’s take-home pay. Claiming more allowances reduces the tax withheld, while fewer allowances increase it. If an employee fails to submit a Form RI W-4, the employer must withhold at the highest rate, as if the employee claimed zero allowances.

Calculating Rhode Island Withholding

After setting up accounts and collecting employee information, employers must calculate the correct tax to withhold. The Rhode Island Division of Taxation provides two methods for this: the Wage Bracket Method and the Percentage Method. Both are detailed in the state’s annual “Withholding Tax Booklet,” which employers should reference for accuracy.

The Wage Bracket Method offers pre-calculated withholding amounts in a series of tables organized by pay period frequency. To use this method, an employer locates the employee’s gross wage for the pay period within the table. The employer then cross-references it with the number of allowances claimed on the Form RI W-4 to find the exact amount to withhold.

The Percentage Method requires a more direct calculation but offers greater precision. The first step is to determine the value of the employee’s allowances by multiplying the number claimed by the exemption value for that pay period. This total is subtracted from the employee’s gross wages to find their taxable wages, and the employer then applies the appropriate tax rate.

For 2025, Rhode Island uses a graduated tax system with rates that apply to specific annualized income brackets. The rate is 3.75% on income up to $79,900, 4.75% on income from $79,900 to $181,650, and 5.99% on income of $181,650 or greater. The annual exemption amount per allowance is $1,000.

Supplemental Wage Withholding

Supplemental wages include payments like bonuses, commissions, and overtime. If these wages are paid along with regular wages in a single payment, the employer must calculate withholding as if the total amount were a single wage payment. This means combining the regular and supplemental amounts before using the wage bracket or percentage method.

When supplemental wages are paid separately from regular wages, employers can use a flat percentage rate for withholding. For 2025, the supplemental wage withholding rate in Rhode Island is 5.99%. This rate can be applied directly to the gross amount of the bonus or commission.

Remitting and Reporting Withheld Taxes

Employers are responsible for remitting withheld funds to the Rhode Island Division of Taxation in a timely manner. The state determines an employer’s payment frequency based on the amount of tax they withhold. This schedule is communicated to each employer annually.

The payment schedules are tiered. Employers who withhold $600 or more in a calendar month must remit payments weekly. Those withholding between $50 and $599 per month must remit payments monthly, due by the 20th of the following month. Employers withholding less than $50 per month make payments quarterly. Many businesses are required to make these payments electronically.

In addition to remitting payments, employers must file regular reports. All employers must file Form RI-941, the “Employer’s Quarterly Tax Return and Reconciliation,” each quarter. This form summarizes the total wages paid and taxes withheld and is due by the last day of the month following the end of the quarter.

At the end of the calendar year, employers must file Form RI W-3, the “Transmittal of Wage and Tax Statements,” by January 31 of the following year. This annual report summarizes the total income tax withheld throughout the year and must be submitted with copies of all employee W-2 forms. The total on the Form RI W-3 must match the sum of the quarterly filings.

Withholding on Non-Wage Income

Rhode Island’s withholding requirements extend to other income, including pensions and annuities. For retirees receiving these payments, state tax withholding is optional. Payers of these benefits will withhold Rhode Island income tax only if the recipient provides a completed tax withholding certificate.

For tax year 2025, Rhode Island allows a modification for up to $50,000 of federally taxable income from qualifying pension and annuity sources. To qualify for this exemption, the recipient must have reached their Social Security full retirement age and have a federal adjusted gross income below certain thresholds. This tax benefit may lead some retirees to opt out of withholding.

The state mandates withholding on certain types of gambling winnings. Payers of prizes from the Rhode Island Lottery, video lottery terminals, casino gaming, and pari-mutuel betting are required to deduct and withhold state income tax. The state’s rules for withholding on this income align with federal regulations.

Withholding is generally triggered on winnings that exceed certain thresholds and are at least 300 times the amount of the wager. When tax is withheld, the payer provides the winner with a Form W-2G, “Certain Gambling Winnings.” The winner must attach a copy of this form to their Rhode Island personal income tax return to receive credit for the amount withheld.