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SB 2365

AN ACT RELATING TO TAXATION -- PERSONAL INCOME TAX

2026 Regular Session Introduced by Jake Bissaillon and 7 co-sponsors

Rhode Island would adjust FAGI to expand or limit certain tax benefits (Social Security, pensions, tuition accounts, unemployment, PPP forgiveness, and targeted credits) for RI res

06/11/2026 Senate passed Sub A
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WeVote Research Nonpartisan
Bill Summary · SB 2365

Summary of Bill SB 2365 (Rhode Island, 2026)

Title: AN ACT RELATING TO TAXATION — PERSONAL INCOME TAX

Jurisdiction: Rhode Island

Session: 2026

Introduced by: Senators Felag, Burke, Tikoian, LaMountain, Lauria, Bissaillon, Urso, and Murray
Co-sponsors: See sponsor list
Referred to: Senate Finance
Status: Committee recommended measure be held for further study (as of May 1, 2026)

Effective date: Upon passage

1) Main purpose and intent

  • The bill makes targeted amendments to Rhode Island’s personal income tax code (Chapter 44-30) to adjust the calculation of Rhode Island taxable income for residents and other filers.
  • It aims to modify several federal-adjusted-gross-income (FAGI) modifications, both increasing and decreasing FAGI under Rhode Island law, and to expand or adjust certain credits, deductions, and special-tax provisions.
  • A notable theme is broadening or tailoring tax relief and incentives for specific income sources (e.g., Social Security, pension/annuity income, tuition savings program withdrawals/contributions, and certain federal relief provisions) while also creating new or adjusted mechanics for emergency/federal stimulus-related adjustments and investment incentives.

2) Key provisions and changes

The bill revises Section 44-30-12 and adds several modifications to calculate Rhode Island income from FAGI. The modifications are categorized as increases or decreases to FAGI.

A. Modifications increasing federal adjusted gross income (FAGI)

  1. Interest income on obligations of any state or its subdivisions, other than RI
  2. Interest/dividends on U.S. authorities/instrumentalities exempt from federal but not state tax
  3. The modification described in § 44-30-25(g) (reference to another provision not fully reproduced here)
  4. Nonqualified withdrawals from the Rhode Island tuition savings program (or similar 529 movements) and related rules:
    • Defines nonqualified withdrawals and imposes a reduction/add-back mechanism depending on circumstances (timeliness, purpose, and timing relative to other contributions).
    • If nonqualified withdrawals occur, adds back to FAGI an amount equal to the lesser of the nonqualified withdrawal net of fees/earnings or the applicable contributions carryover, with carryover interplay across years.
  5. The modification described in § 44-30-25.1(d)(3)(i) (another cross-reference)
  6. Unemployment compensation included in FAGI but not federal (unemployment benefits)
  7. Deduction/credit for sales tax paid on a qualified motor vehicle purchase
  8. PPP loan forgiveness (for tax years beginning on/after Jan 1, 2020) to the extent the forgiven amount exceeds $250,000 (including pass-through entity shares)
  9. For tax years through 2025, considerations related to the One Big Beautiful Bill Act (or similar Congressional enactments) and emergency-rule authority to preserve RI tax base

B. Modifications reducing FAGI

  1. Interest income from U.S. obligations and related exempt income (to the extent deductible against RI tax), with offsets for debt interest deductions
  2. Other specified modifications described in § 44-30-25(f) and § 44-30-1.1(c)(1)
  3. Withdrawals from the RI tuition savings program included in FAGI (except for qualified withdrawals)
  4. Contributions to the RI tuition savings program (subject to limits and rules):
    • Subtraction cap: $500 per taxable year ($1,000 for a joint return)
    • Restrictions on what counts as a contribution (no third-party or transfers from other accounts, no beneficiary changes)
    • Carryover mechanism for excess contributions (carryover rules across years)
    • Requires computation of carryover on RI tax return; allocation rules if filing status changes across years
  5. The modification described in § 44-30-25.1(d)(1)
  6. Amounts deemed taxable income due to payment/provision of insurance benefits to a dependent
  7. Organ transplantation modification (special deduction for organ donation expenses)
  8. Taxable Social Security income:
    • For years 2016–2025: partial exclusion of Social Security benefits for seniors with lower FAGI thresholds (updated in 2026)
    • For years beginning 2026: higher FAGI thresholds for exclusions (e.g., $140,000 single/HOH/separate; $180,000 joint)
    • Inflation adjustments and rounding rules
  9. Pension/annuity retirement income modification:
    • Gradually expanding exclusion amounts for qualifying seniors, with inflation adjustments and threshold criteria
    • Separate calculations for single/HOH/separate vs. joint filers
  10. Rhode Island investment in Opportunity Zones: subtraction for incremental difference between RI and federal credits for investments in RI Opportunity Zones held at least 7 years
  11. Military service pensions: starting 2023, a subtraction from FAGI for military service pension benefits (limits equal to pension received)
  12. Rebates issued under § 44-30-103: rebates included in gross income for federal purposes, to be subtracted for RI purposes
  13. For taxpayers licensed under RI professional licensing (Chs. 28.6/28.11 of Title 21): exclude expenditures that would be deductible federally under § 280E (drug-related business deductions)

C. Fiduciary and partnership considerations

  • Modifications for Rhode Island fiduciary adjustment: adjustments apply to estates/trusts per RI law
  • Partner-level adjustments aligned with partnership income/deductions

3) Who or what would be affected

  • Rhode Island resident individuals filing personal income tax, plus nonresidents/part-year residents affected via FAGI modifications.
  • Taxpayers with:
    • Social Security benefits
    • Pension/annuity income
    • Tuition savings program transactions (contributions/withdrawals)
    • Unemployment compensation
    • PPP loan forgiveness (to the extent over thresholds)
    • Investments in Rhode Island Opportunity Zones
    • Military service pensions
    • Domestic insurance benefits for dependents
    • Organ donor expenses
    • Licensed professionals subject to 280E restrictions
  • Estates/trusts and partnerships, through fiduciary and pass-through adjustments

4) Procedural and timeline aspects

  • Effective date: The act takes effect upon passage (immediate operational effect pending enactment).
  • Emergency-rule authority: For certain provisions related to the One Big Beautiful Bill Act or similar Congressional changes, RI agencies may promulgate emergency rules to preserve the RI tax base if federal changes occur during the current or next tax year.
  • Inflation adjustments: Several sections require automatic annual inflation adjustments using CPI-based formulas, with rounding rules to the nearest $50 (or $25 for certain returns split).

5) Practical implications

  • Taxpayers near the current FAGI thresholds for Social Security and retirement-income exclusions could see increased or decreased Rhode Island taxable income depending on changes in FAGI versus FAGI as calculated federally.
  • New or revised credits and deductions (tuition savings, opioid/organ donation, Opportunity Zone investments, and 280E-related limitations) could shift tax liabilities for targeted groups.
  • The provision regarding PPP forgiveness and stimulus-related provisions may modify the RI tax base if federal relief remains substantial.
  • Administrative complexity increases due to carryovers, election timing for contributions, and inflation-indexed thresholds requiring annual updates.

If you’d like, I can highlight the provisions most relevant to a specific taxpayer group (retirees, college savers, or small business owners) or provide a side-by-side comparison with the current Rhode Island tax rules.

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

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