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Tool | August 2013

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 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%. It collapsed the three "middle" tax rates into a single, lower rate of 4.75% and kept the low rate at 3.75%. The Tax Foundation says Rhode Island's median real estate taxes, levied by cities and towns, are the fifth-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 $58,600 of taxable income)

High: 5.99% (on taxable income over $133,250)

Social Security

Social Security is taxed to the extent it is federally taxed. Taxpayers with provisional income of $25,000 or more (filing as a 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 of the Social Security benefit.

Exemptions for Other Retirement Income

Railroad Retirement benefits are exempt, but there are few 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 estate-tax exemption for decedents dying in 2013 is $910,725, an increase of 2% over 2012. A 2009 law required that the estate-tax threshold be adjusted each January based on inflation.

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