Summary of bill: SB 2536 (Rhode Island, 2026) – AN ACT RELATING TO TAXATION — PERSONAL INCOME TAX
Date Introduced: February 13, 2026
Referred to: Senate Finance
Status: As of May 1, 2026, committee recommended measure be held for further study
Primary purpose and intent
SB 2536 makes a broad set of adjustments to Rhode Island’s personal income tax by modifying Rhode Island taxable income derived from federal adjusted gross income (AGI). The bill expands the set of additions and subtractions (modifications) to AGI, with multiple targeted provisions intended to alter the state tax base, reflecting various federal tax changes, deductions, and credits. The act also includes emergency-rule provisions in connection with future federal enactments described as “One Big Beautiful Bill Act” or similar Congressional changes.
Key takeaway: The bill broadens or narrows Rhode Island taxable income in numerous specific areas, potentially increasing or decreasing state tax liability for individuals, depending on personal circumstances.
Key provisions and changes
Modifications increasing Rhode Island AGI (additions to federal AGI)
- Interest income on obligations of states other than Rhode Island.
- Interest or dividend income on U.S. government-authority obligations exempt from federal tax but not from Rhode Island tax.
- The modification described in § 44-30-25(g) (context needed from existing statute).
- Nonqualified withdrawals from the Rhode Island Tuition Savings Program (16-57-6.1):
- Includes certain transfers/withdrawals that are not used for qualified higher education expenses or occur within two taxable years after a related contribution modification.
- If a nonqualified withdrawal occurs, add back to Rhode Island AGI an amount linked to the lesser of the withdrawal amount (with penalties/earnings) or the taxpayer’s contribution carryover, with carryover mechanics defined.
- The modification described in § 44-30-25.1(d)(3)(i).
- Unemployment compensation not included in federal AGI.
- Deduction for sales tax paid on a qualified motor vehicle.
- Forgiven Paycheck Protection Program (PPP) loans (tax years beginning on/after 1/1/2020) above $250,000, including pass-through entity allocations.
- For tax years beginning on or before 1/1/2025, adjustments related to the One Big Beautiful Bill Act or similar Congressional enactments; triggers emergency rules to preserve Rhode Island tax base.
Modifications reducing Rhode Island AGI (subtractions from federal AGI)
- Interest income on U.S. obligations and certain U.S.-related securities to the extent federally taxable but state-exempt; subject to reduction if related interest was deductible for Rhode Island tax purposes.
- The modification described in § 44-30-25(f) or § 44-30-1.1(c)(1).
- Withdrawals from the tuition savings program that are included in federal AGI (i.e., not nonqualified withdrawals).
- Contributions to a tuition savings program account (with limitations):
- Annual subtraction limit: $500 per taxpayer, or $1,000 for joint filers.
- Exclusions: contributions by non-participants, transfers/rollovers from other 529 accounts, or changes of beneficiary do not count.
- Carryover: any excess contributions beyond the annual limit can be carried over to subsequent years with detailed carryover rules.
- For carryover years, allocations must be reflected on Rhode Island tax returns; requires proper reporting if filing status changes.
- The modification described in § 44-30-25.1(d)(1).
- Amounts deemed taxable income due to insurance benefits paid to a dependent or domestic partner.
- Organ transplant-related modification (see below).
Organ transplantation
- Up to $10,000 subtraction for donating a human organ (liver, pancreas, kidney, intestine, lung, or bone marrow).
- Subtraction limited to unreimbursed expenses (travel, lodging, lost wages) incurred due to organ donation.
- Not available to part-time residents or nonresidents.
Social Security income modification (for taxpayers’ Rhode Island tax)
- For tax years after 2015, provides a subtraction of Social Security benefits includible in federal AGI for:
- Eligible individuals with low to moderate income thresholds (age-based and filing status-based thresholds) initially:
- Unmarried/head of household/Married filing separately: gross income under $80,000 (adjusted for inflation).
- Married filing jointly or qualifying widow(er): joint AGI under $100,000 (adjusted for inflation).
- The subtraction amount is indexed to inflation using Georgia-based, base-year adjustments (base year 2000; CPI-based COLA).
- From tax year 2027 onward: all eligible Social Security recipients may subtract up to $25,000 of Social Security income.
- Annual inflation adjustments apply; rounding rules specified (multiples of $50 or $25 for married filing separately).
Other specified modifications
- Modifications for taxable retirement income from certain pension plans or annuities:
- Phased increases in the amount eligible for subtraction: $15,000 (2017–2022), $20,000 (2023–2024), $50,000 (from 2025 onward); applies to both unmarried and married filers with respective income thresholds.
- Inflation adjustments apply; rules mirror those for Social Security adjustments.
- Rhode Island investment in Opportunity Zones:
- For investments in RI Opportunity Zones held at least seven years, adjustment to income equals the incremental difference between Rhode Island and federal Opportunity Zone benefits (to be aligned with federal §1400Z-2 provisions).
- Military service pensions:
- From tax year 2023 onward, allows subtraction of military service pension benefits included in federal AGI, with limits tying to the amount of pension received.
- Rebate treatment:
- Any rebate issued under Rhode Island statute 44-30-103, if included in gross income for federal purposes, is treated as a modification.
- Tax treatment for licensed healthcare providers under certain regimes:
- From 2025 onward, treatment for expenditures eligible for federal deduction but disallowed under 26 U.S.C. § 280E (typical for certain controlled substances), allowing an adjustment to income equal to the eligible expenditure.
Fiduciary adjustment and partnerships
- Rhode Island fiduciary adjustment for estates and trusts is taken into account, along with partnership-related modifications determined under existing partnership rules.
Who would be affected
- Individual Rhode Island residents, part-year residents, and nonresidents with Rhode Island source income, including:
- Taxpayers with Social Security benefits, pensions, and retirement income.
- Homeowners and vehicle purchasers benefiting from sales tax deductions.
- Individuals contributing to or withdrawing from the Rhode Island Tuition Savings Program.
- Organ donors, PPP loan recipients, and investors in Rhode Island Opportunity Zones.
- Taxpayers with unemployment compensation, military pensions, or rebates.
- Fiduciaries (estates and trusts) and partners in partnerships, which would reflect the modifications on Rhode Island income.
Procedural and timeline notes
- Effective date: The act takes effect upon passage.
- Emergency rule provisions: For certain federal enactments (e.g., One Big Beautiful Bill Act), Rhode Island rules may be promulgated on an emergency basis to preserve the Rhode Island tax base.
- Inflations and adjustments: Several sections reference inflation indexing with base year 2000 and CPI-based COLA adjustments, with annual updates to certain thresholds (e.g., Social Security and retirement income limits).
- Reporting: Carryover provisions for tuition savings program contributions require specific carryover calculations and allocation on separate-year returns if filers have changed filing status.
Summary assessment
SB 2536 represents a comprehensive recalibration of Rhode Island’s personal income tax, balancing additions to Rhode Island income with targeted subtractions. It expands the tax base in several areas (e.g., certain 529 nonqualified withdrawals, PPP forgiveness above $250k, unemployment compensation not included federally) while offering meaningful credits and deductions in others (e.g., Social Security income, retirement/pension income, organ donation costs, military pensions, 529 program contributions, and state Opportunity Zone investments). It also introduces emergency rule authority to respond to future federal tax changes. The bill would likely diversify the net impact across taxpayers, with some individuals experiencing higher Rhode Island tax liability and others receiving greater relief, depending on income sources and Eligible deductions.
