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Rhode Island Retirement Tax Friendliness

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Overview of Rhode Island Retirement Tax Friendliness

In Rhode Island, retirement income is taxable, though the state does offer some relief measures. Social Security retirement benefits are also taxable, but only for taxpayers with income that surpasses specific limits. Rhode Island has high property taxes and is one of the few states to collect its own estate tax.

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You will pay of Rhode Island state taxes on your pre-tax income of
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is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Rhode Island Retirement Taxes

Photo credit: ©iStock.com/Kenneth Wiedemann

Rhode Island is the smallest state in the U.S. with a land area of just 1,045 miles (less than 0.03% of the country’s total land area). Much of that is located on or near the ocean, in close proximity to fantastic sightseeing, sailing, kayaking and fishing.

Those are all great reasons to consider a Rhode Island retirement, but the Ocean State’s retirement taxes might be cause to think twice. Why? Unlike many states, Rhode Island taxes most retirement income, though there is an exemption taxpayers can take advantage of. Even Social Security retirement benefits are taxable, though there are some income limits surrounding this tax. On top of that, Rhode Island has property taxes that rank among the highest of any state. It is also one of the few states to collect its own estate tax.

A financial advisor in Rhode Island can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial plans, including taxes, homeownership, insurance and estate planning, to make sure you are preparing for the future.

Is Rhode Island tax-friendly for retirees?

Rhode Island taxes most retirement income at rates ranging from 3.75% to 5.99%. It is one of the few states to tax Social Security retirement benefits, though there are some stipulations around these taxes.

The Ocean State has sales tax rates that are slightly higher than the national average. It has an average effective property tax rate of 1.53%, which is the 10th-highest in the country. In turn, the state's cost of living is fairly expensive.

Is Social Security taxable in Rhode Island?

In Rhode Island, Social Security retirement benefits that are subject to federal taxes may also be subject to the state income tax. For the 2020 tax year, single filers with a federal AGI of up to $86,350 and joint filers with a federal AGI of up to $107,950 don't need to pay state taxes on their benefits. However, if your AGI surpasses these income limits, then you'll be taxed the same as you would be on your federal return.

Are other forms of retirement income taxable in Rhode Island?

Most other retirement income in Rhode Island is subject to the state income tax. This includes income from retirement accounts like an IRA or a 401(k). It also includes income from both government pensions and private pensions.

However, the state does provide residents who have attained full retirement age a $15,000 exclusion that can be used to subtract taxable income from a public, private or military retirement plan. Single filers with a federal AGI of more than $84,700 and joint filers with a federal AGI of more than $105,850 are not eligible for this exclusion.

Any taxable retirement income in Rhode Island is taxed at the rates shown in the bracket table below.

Income Tax Brackets

All Filers
Rhode Island Taxable IncomeRate
$0 - $65,2503.75%
$65,250 - $148,3504.75%
$148,350+5.99%

How high are property taxes in Rhode Island?

Property taxes and property tax rates in Rhode Island are quite high. The state’s average effective property tax rate is 1.53%, 10th-highest of any state. These expensive rates are compounded by high property values in Rhode Island. As a result, a typical Rhode Island homeowner pays more than $4,300 annually in property taxes.

What is the Rhode Island Property Tax Relief Credit?

Senior homeowners in Rhode Island may be able to claim a credit to reduce their overall property tax bill. To be eligible for the credit, you must be at least 65 years old and have household income no greater than $30,000. The maximum credit is $400.

There are other property tax relief programs available in some cities in Rhode Island. For example, in the city of Providence, anyone who is at least 65 (or anyone who is at least 62 and currently receiving Social Security retirement benefits) can claim an exemption of up to $511.

How high are sales taxes in Rhode Island?

Photo credit: ©iStock.com/DenisTangneyJr

There is a single statewide sales tax rate in Rhode Island of 7%. Cities and counties do not charge their own sales taxes, so that is the only rate you will pay.

That rate is slightly higher than the national average sales tax rate, but Rhode Island exempts several types of products that are especially important to seniors living on a fixed budget. The state exempts most kinds of groceries from its sales tax, as well as all prescription drugs and medical equipment.

What other Rhode Island taxes should I be concerned about?

The Rhode Island estate tax is more stringent than the federal estate tax, so even if your estate is not subject to the federal tax it may be affected by the Rhode Island tax. Specifically, the Rhode Island estate tax has an exemption of $1,595,156 for those who die in 2021 and $1,579,922 for anyone who died in 2020. By contrast, the federal exemption is $11.58 million for 2020 and $11.7 million for 2021.

The Rhode Island estate tax has rates that range from 0.8% up to 16%. As the value of your estate increases, so does the tax rate. The top rate of 16% applies to the portion of any estate greater than $10.04 million in value.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology To find the most tax friendly places for retirees, our study analyzed how the tax policies of each city would impact a theoretical retiree with an annual income of $50,000. Our analysis assumes a retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from a retirement savings account like a 401(k) or IRA.

To calculate the expected income tax this person would pay in each location, we applied the relevant deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income after subtracting income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. The income tax category made up 40% of the index, property taxes accounted for 30%, sales taxes 20% and fuel taxes 10%.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2018 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration