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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Rhode Island Retirement Taxes
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.
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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 1.30%. 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 2021 tax year, single filers with a federal AGI of up to $88,950 and joint filers with a federal AGI of up to $111,200 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 $87,225 and joint filers with a federal AGI of more than $109,050 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
|Rhode Island Taxable Income||Rate|
|$0 - $68,200||3.75%|
|$68,200 - $155,050||4.75%|
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 1.30%, 15th-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 $4,518 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 $35,000. The maximum credit is $600.
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?
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 $1,648,611 for anyone who dies in 2022. By contrast, the federal exemption is $12.06 million for 2022 and $12.92 for 2023.
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.