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HB 7057

AN ACT RELATING TO TAXATION -- PERSONAL INCOME TAX

2026 Regular Session Introduced by Mia Ackerman and 9 co-sponsors

Rhode Island taxes will progressively exclude more Social Security income from FAGI, reaching a full 100% exclusion by 2031, with annual inflation-adjusted thresholds.

05/12/2026 Committee recommended measure be held for further study
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Bill Summary · HB 7057

Summary of HB 7057 (Rhode Island, 2026) – AN ACT RELATING TO TAXATION — PERSONAL INCOME TAX

This bill would modify Rhode Island’s personal income tax by adjusting how certain types of federal-adjusted-gross-income (FAGI) items are treated for Rhode Island tax purposes. The changes are designed to gradually expand Rhode Island’s tax base and provide targeted credits and deductions, with a notable phase-in for Social Security income and several other modifications over time. The act takes effect upon passage.

Main purpose and intent

  • To revise the calculation of Rhode Island taxable income by modifying what is added to or subtracted from federal adjusted gross income (FAGI).
  • To gradually expand relief or exemptions for specific income types, while introducing new deductions and credits.
  • To create a framework for emergency rulemaking related to Congress’s One Big Beautiful Bill Act or similar federal actions, preserving Rhode Island’s tax base in those scenarios.

Key provisions and changes

(a) Definition and general approach

  • Rhode Island income for residents is FAGI plus or minus a series of specified modifications (both additions and subtractions).

(b) Modifications increasing FAGI (added to FAGI)

  1. Interest income on state/municipal obligations of any state other than Rhode Island (plus certain federal obligations exempt from federal tax).
  2. Certain U.S. federal obligations or securities exemptions.
  3. A specified modification described in § 44-30-25(g) (not reproduced here; part of existing law).
  4. Nonqualified withdrawals from a tuition savings program (losses or distributions not used for qualified higher education expenses) trigger additional FAGI recognition, with subsequent carryover rules and interaction with prior years.
  5. The modification described in § 44-30-25.1(d)(3)(i) (another existing-state-specific modification).
  6. Unemployment compensation not included in FAGI (treated as income for Rhode Island purposes).
  7. Deduction for sales tax paid on a qualified motor vehicle (as defined under federal code § 164(a)(6)).
  8. Forgiven Paycheck Protection Program (PPP) loan amounts for federal stimulus periods, to the extent the forgiven amount exceeds $250,000 (including pass-through entity allocations).
  9. For tax years around 2025, amounts related to the One Big Beautiful Bill Act or other similar Congressional enactments that affect federal tax items; these would be grounds for emergency rules to preserve RI tax base.

(c) Modifications reducing FAGI (subtracted from FAGI)

  1. Interest on U.S. government obligations and similar federal obligations that are includible in gross income for federal taxes but exempt from Rhode Island tax (with limits tied to related interest deductions).
  2. Additional specified reductions described in § 44-30-25(f) or § 44-30-1.1(c)(1).
  3. The amount of any withdrawal or distribution from the RI tuition savings program included in FAGI (except for nonqualified withdrawals).
  4. Contributions to a tuition savings program (subject to several limits and carryover provisions):
    • Annual subtraction limited to $500 ($1,000 for joint returns), with restrictions on eligible contributors and carryovers.
    • Carryover mechanics and allocation requirements for couples filing jointly in different years.
  5. The modification described in § 44-30-25.1(d)(1).
  6. Amounts deemed taxable due to insurance benefits provided to a dependent.
  7. Organ transplantation modification: up to $10,000 subtraction for unreimbursed expenses related to organ donation (travel, lodging, lost wages). Applies only to residents, not part-year/part-time residents.
  8. Taxable social security income: phased reductions/reductions in FAGI for Social Security income, with detailed inflation-adjusted thresholds and escalating subtraction percentages beginning in 2026 onward:
    • Starting 2016 provisions remain, but from 2027 onward:
      • 2027: 20% of Social Security income can be subtracted if income thresholds are met.
      • 2028: 40%
      • 2029: 60%
      • 2030: 80%
      • 2031 and later: 100%
    • Thresholds are adjusted annually for inflation, using CPI-based adjustments, and rounding rules (multiples of $50 or $25 depending on filing status).
    • Importantly, the 100% subtraction (full exclusion of Social Security from FAGI for RI purposes) does not increase FAGI for Social Security income that is already exempt federally.
  9. Modification for taxable retirement income from certain pension plans or annuities:
    • Phased allowances increasing over time: up to $15,000 (2017–2021), then $20,000 (2023–2024), then $50,000 (2025 onward) for single filers (and mirrors for married filing jointly).
    • Includes inflation adjustments and rounding rules similar to the Social Security modification.
    • Applies to individuals with incomes below the specified Social Security thresholds.
  10. Rhode Island investment in Opportunity Zones: for investments in RI Opportunity Zones held at least seven years, a modification for the incremental difference between federal 1400Z-2 benefits and RI benefits.
  11. Military service pensions: starting 2023, tax year, subtraction for military service pension benefits included in FAGI; limits align with other pension modifications and do not exceed the actual pension received.
  12. Rebate receipts: any rebate issued to the taxpayer under RI law remains excluded unless included in gross income federally.
  13. For taxpayers licensed under RI prescription drug/medical licensing regimes (Chapters 28.6 or 28.11 of Title 21): starting 2025, subtract the amount equal to any federal deduction disallowed under 26 U.S.C. 280E (relating to certain drug-related activities).

(d) Fiduciary adjustment

  • Adds or subtracts the beneficiary's share of Rhode Island fiduciary adjustment under § 44-30-17 (estate or trust).

(e) Partners

  • For partnership items, modifications related to income or deductions apply as per § 44-30-15.

Who is affected

  • Rhode Island resident individuals (and by extension part-year residents and nonresidents when applicable through specific provisions) filing RI personal income tax.
  • Taxpayers with:
    • Social Security income (significant impact due to phased 20% to 100% exclusion).
    • Pension/annuity income from retirement plans.
    • Tuition savings program participants and nonqualified withdrawals.
    • Unemployment compensation recipients.
    • Individuals with RI-based qualifying motor vehicle sales tax deductions.
    • PPP loan forgiveness recipients (to the extent above $250k).
    • Organ donors and related expenses.
    • Military pension recipients.
    • RI investment in Opportunity Zones.
    • Those licensed under RI regulatory regimes impacted by 280E-related provisions.

Procedural and timeline aspects

  • Effective date: The act takes effect upon passage.
  • The bill includes phased-in changes over multiple years, particularly for Social Security income (20% to 100% by 2031) and for pension income modifications, and includes inflation adjustments for several thresholds.
  • For certain provisions related to federal acts (One Big Beautiful Bill Act) and related IRS changes, the bill anticipates emergency rulemaking under Rhode Island law to preserve the tax base during the current or next year.

Potential impact considerations

  • Net effect on RI residents will vary by income composition; higher Social Security income may see substantial tax relief in later years.
  • Taxpayers with nonqualified withdrawals from the RI tuition savings program could experience higher taxable FAGI in some years and carryover rules may offset some of that impact in other years.
  • Expansion of deductions for military pensions, retirement income, and certain professional license-related deductions could lower RI taxable income for many retirees and certain professionals.
  • The PPP loan forgiveness and 280E-related provisions could affect specific groups with large one-time or ongoing income shifts.
  • The inflation-adjusted thresholds will cause gradual changes in eligibility and the amount of subtraction over time.

If you’d like, I can provide a section-by-section reader-friendly briefing or a quick “Who benefits most” quick-reference based on typical family income scenarios.

Compiled from official sources — confirm details with the bill’s official record.

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