RHODE ISLAND
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NICKNAME
The Ocean State
BOTTOM LINE: NOT TAX-FRIENDLY
Rhode Island 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 taxes virtually all other sources of retirement income, including pension income. Although it 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 state treats capital-gains income as ordinary income for tax purposes. The Tax Foundation says Rhode Island's median real estate taxes are the fifth-highest in the U.S., but low-income seniors are eligible for modest property-tax relief.
STATE SALES TAX
7%. Food, some clothing, precious-metal bullion, some burial-related items, and prescription and nonprescription drugs are exempt. The tax will apply to the portion of any individual sale of clothing and footwear that exceeds $250, as of October 1, 2012. The sales tax on package tour and scenic and sightseeing transportation services has been repealed, and the surcharge on rental vehicles is now 8%, up from 6%.
INCOME-TAX RANGE
Low: 3.75% (on up to $57,150 of taxable income)
High: 5.99% (on taxable income over $129,900)
SOCIAL SECURITY
Social Security is taxed to the extent it is federally taxed. Taxpayers with provisional income of $25,000 or more (single) or $32,000 or more (married filing jointly) 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 the Social Security benefit.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Railroad Retirement benefits are exempt, but there are no other retirement-income tax breaks. Out-of-state government pensions are fully taxed, and capital-gains income is taxed as ordinary income. 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.
Tax breaks for seniors: Homeowners 65 and older who earn $30,000 or less can get a property-tax-relief credit of up to $300. 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 estate-tax exemption for decedents dying in 2012 is $892,865, an increase of 3.9% over 2011. A 2009 law required that the estate-tax threshold be adjusted each January based on inflation.
Visit RetirementLiving.com for a complete rundown of taxes in Rhode Island.
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