TAX NEWS - June 2010

Rhode Island tax rates, deductions, exemptions revised; credits limited

The Rhode Island personal income tax system is dramatically changed as the tax rates, standard deductions, and personal exemption are revised and many credits are eliminated.

Tax rates. The tax rates are revised so that taxable incomes of up to $55,000 are taxed at 3.75%, taxable incomes between $55,000 and $125,000 are taxed at 4.75%, and taxable incomes over $125,000 are taxed at 5.99%. These rates apply to the following taxpayers: married filing joint, qualifying widow(er), head of household, single, married filing separate, and bankruptcy estates. For trusts and estates, the tax rates are set so that taxable incomes of up to $2,230 are taxed at 3.75%, taxable incomes between $2,230 and $7,022 are taxed at 4.75%, and taxable incomes over $7,022 are taxed at 5.99%. The rates are indexed for inflation. The alternative minimum tax is no longer applicable.

The alternative flat tax rate election is disallowed for tax years after 2010.

Standard deductions. The basic standard deduction is $7,500 for single or married filing separate taxpayers, $15,000 for married filing joint or qualifying widow(er) taxpayers, and $11,250 for head of household taxpayers. Nonresident alien individuals and estates and trusts are not eligible for the standard deduction. The deduction is phased out for taxpayers whose adjusted gross incomes exceed $175,000. The figures are indexed for inflation. Itemizing deductions is no longer allowed.

Personal exemptions. The personal exemption is $3,500 multiplied by the number of exemptions allowed for federal tax purposes. The exemption is phased out for taxpayers whose adjusted gross incomes exceed $175,000. The figures are indexed for inflation.

Credits. The only credits that are permitted against the personal income tax are credits for earned income, property tax relief, lead paint, income taxes of other states, historic structures, motion picture production, child and dependent care, contributions to scholarship organizations, and taxes withheld. (H.B. 8196, Laws 2010, effective January 1, 2011.)