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Rhode Island Retirement Tax Friendliness

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Overview of Rhode Island Retirement Tax Friendliness

Rhode Island provides no special income tax exemptions or deductions for retirement income. Social Security retirement benefits are taxable, so long as they are also taxed federally. 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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Quick Guide to Retirement Income Taxes
is toward retirees.
Social security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, your marginal state tax rate is %.
Public pension income is taxed, private pension income is taxed.
  • Our Tax Expert

    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 sight-seeing, 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 most other states, Rhode Island provides no special income tax exemptions or deductions for retirement income. Even Social Security retirement benefits are taxable, so long as they are also taxed federally.

On top of that, Rhode Island has property taxes that rank among the ten highest of any state. It is also one of the few states to collect its own estate tax. Below, we will take a closer look at these and other important Rhode Island retirement tax rules.

Is Rhode Island tax-friendly for retirees?

No. Rhode Island taxes all 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 it only taxes Social Security income that is taxed at the federal level.

The Ocean State has sales tax rates that are slightly higher than the national average. It has an average effective property tax rate of 1.55%. This is 10th highest in the country. Those taxes contribute to a cost of living that is 23.3% higher than the national average.

Is Social Security taxable in Rhode Island?

Yes. Any Social Security retirement benefits that are subject to federal taxes will also be subject to the Rhode Island state income tax.

In general Social Security retirement benefits may be taxed at the federal level if they are combined with other sources of income and that amount exceeds a certain amount. The IRS advises that if half of yourSocial Security income combined with all other income exceeds $25,000 (for all filing statuses except joint filers) or $32,000 (for joint filers), you may pay taxes on Social Security.

Are other forms of retirement income taxable in Rhode Island?

Yes. All 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 a government pension ora private pension.

Income from any of those sources is combined with all other income, including work income, and taxed at the rates shown in the bracket table below (after applying other deductions and exemptions).

Income Tax Brackets

All Filers
Rhode Island Taxable IncomeRate
$0 - $61,3003.75%
$61,300 - $139,4004.75%
$139,400+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 1.55%, 10th highest of any state. Those high rates are compounded by high property values in Rhode Island. A typical Rhode Island homeowner pays over $3,800 annually in property taxes. Including property taxes, housing costs in Rhode Island are 34.7% higher than the national average.

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. In 2015, the maximum credit was $305.

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 $26,545. Owner-occupied properties in Providence also face a lower tax rate. It is $19.25 per $1,000 in taxable value as opposed to $33.75 for other properties.

Photo credit: ©iStock.com/DenisTangneyJr

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 college their own 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 $1.5 million, while the federal exemption is $5.43 million.

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 above $10.04million 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 Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied 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 the 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 less 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 down 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. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration