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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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Rhode Island

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The Bottom Line
Map of Rhode Island

NOT TAX-FRIENDLY

One of Kiplinger's top ten least tax-friendly states for retirees, the Ocean State is particularly tough on retirees. Not only does it tax Social Security benefits, similar to the way the federal government taxes up to 85% of benefits, it also taxes virtually all other sources of retirement income, including pension income. Although it once had one of the highest tax rates in the nation, Rhode Island has dropped its top income tax rate from 9.9% to 5.99%. The Tax Foundation says Rhode Island's median real estate taxes, levied by cities and towns, are the seventh-highest in the U.S. But low-income seniors are eligible for modest property-tax relief from a state "circuit breaker" program.

State Sales Tax

7%. Groceries, most clothing and footwear, precious-metal bullion under some circumstances, and prescription drugs are exempt. Over-the-counter drugs such as aspirin are taxed, unless you have a prescription. The tax also applies to the portion of any individual sale of clothing and footwear that exceeds $250.

Income Tax Range

Low: 3.75% (on up to $59,600 of taxable income)

High: 5.99% (on taxable income over $135,500)

Social Security

Social Security is taxed to the extent it is federally taxed. Single filers with provisional income of $25,000 or more or married joint filers with $32,000 or more are subject to tax on Social Security benefits. Provisional income is composed of federal adjusted gross income, tax-exempt interest, some foreign-source income and one-half of the Social Security benefit.

Exemptions for Other Retirement Income

Railroad Retirement benefits are exempt, but there are no other retirement-income tax breaks (if Social Security benefits fall below the applicable threshold, they're tax-free). Out-of-state government pensions are fully taxed. Individual pension income is generally taxable.

Property Taxes

State property taxes are not imposed directly by the state, but portions of the city and town taxes are set aside for state purposes. Taxes are assessed and collected by local jurisdictions. Fire-district taxes are collected in some rural communities.

Median property tax on the state's median home value of $267,100 is $3,618, according to the Tax Foundation.

Tax breaks for seniors: Homeowners 65 and older who earn $30,000 or less can get a state tax credit of up to $300 under the statewide property-tax relief program. Cities or towns may offer a property tax exemption or similar property tax break for seniors or veterans. To qualify for the credit, you must have been a full-time resident of Rhode Island for the entire tax year, and you must be current on your property tax payments.

Inheritance and
Estate Taxes

There is no inheritance tax. Rhode Island has an estate tax with a maximum rate of 16%. The Rhode Island estate tax threshold is $921,655 for decedents dying on or after January 1, 2014, until the end of the year. For those who die after December 31, 2014, the estate-tax exemption rises to $1.5 million. Another change coming on January 2015, when the estate tax is triggered, it will no longer apply to the whole estate but only the value that exceeds the exemption amount

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