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SB 2539

AN ACT RELATING TO TAXATION -- PERSONAL INCOME TAX

2026 Regular Session Introduced by Bob Britto and 4 co-sponsors

Rhode Island would gradually exclude more Social Security from taxable income, reaching full exclusion by 2030, while expanding RI-specific deductions and credits.

04/30/2026 Committee recommended measure be held for further study
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Bill Summary · SB 2539

Summary: SB 2539 (Rhode Island) – Personal Income Tax

Bill: SB 2539
Session: 2026
Jurisdiction: Rhode Island
Introduced: February 13, 2026
Sponsors: Senators McKenney, Tikoian, Felag, Britto, LaMountain; Co-sponsors: Britto, Felag, LaMountain, McKenney, Tikoian
Committee: Senate Finance
Status: Recommended to be held for further study (as of May 1, 2026)

1) Purpose and Intent

SB 2539 proposes a comprehensive set of modifications to Rhode Island’s personal income tax calculation. The core idea is to:

  • Base Rhode Island income for residents on federal adjusted gross income (AGI) with a broad set of state-specific modifications.
  • Gradually expand the number of deductions, exemptions, and subtractions that reduce or adjust AGI, while adding some new inclusions to income.
  • Specifically, implement a phased-in program to begin crediting more Social Security income (i.e., making Social Security benefits tax-free to increasing degrees) from 2027 onward, culminating in 100% exclusion by 2030.
  • Address a range of other adjustments tied to tuition savings programs, unemployment compensation, payback provisions from federal relief programs, mortgage/vehicle-related credits, special retirement income modifications, and a few targeted stimulus or policy-driven adjustments (e.g., 529 plan-related mechanics, opportunity zones, organ donation, and certain professional licenses).

The act is effective upon passage.

2) Key Provisions and Changes

Provisions are organized as modifications to federal AGI, either adding to or subtracting from federal AGI to determine Rhode Island taxable income for residents.

(a) General Framework

  • Rhode Island income for a resident = federal AGI plus or minus state-specific modifications listed in the sections.

(b) Modifications Increasing Federal AGI (Increases RI income)

  1. Interest on obligations of non-RI state or subdivisions.
  2. Interest/dividends on U.S. authorities/instrumentalities (not Rhode Island), if exempt from federal but not state tax.
  3. Specific modification described in § 44-30-25(g) (not detailed in excerpt).
  4. Nonqualified withdrawals from the Rhode Island tuition savings program (RS 16-57-6.1) and related 529 rules:
    • Definitions of nonqualified withdrawals and required adjustments/penalties to federal AGI and RI income.
    • Recovery amount equal to lesser of: (a) nonqualified withdrawal plus penalties/earnings; or (b) the amount of the person’s contribution modification for the year and prior two years, adjusted for prior withdrawals.
  5. Modifications described in § 44-30-25.1(d)(3)(i) (not detailed here).
  6. Unemployment compensation not included in federal AGI (RI addition).
  7. Deduction/election related to qualified motor vehicle sales tax deduction (federal alignment).
  8. Forgiven Paycheck Protection Program (PPP) loan amounts for federal purposes, to the extent forgiven and excluding amounts under $250,000 (and including distributive shares from pass-through entities beyond $250k).
  9. For tax years 2025-2029: Adjustments related to “One Big Beautiful Bill Act” (or similar Congressional enactments) that would otherwise be taxed federally; triggers emergency rules to preserve RI tax base if such federal changes occur.
  10. Rhode Island investment in Opportunity Zones: RI modification for the incremental difference between federal/RI benefits for investments in RI Opportunity Zones held at least seven years.
  11. Military service pensions: Subtraction for military service pension benefits starting in 2023, limited to the pension amount received.
  12. Rebates issued under § 44-30-103, to the extent included in gross income for federal purposes.
  13. For professionals licensed in RI under certain health/life/dispensing laws: RI treatment of expenditures that would be deductible federally but disallowed under § 280E (2025 onward).

(c) Modifications Reducing Federal AGI (Subtracts from RI income)

  1. Interest on U.S. and possession obligations (to the extent includible federally but exempt from RI taxes), with reduction for interest deductions tied to RI-exempt income.
  2. Modifications described in § 44-30-25(f) or § 44-30-1.1(c)(1).
  3. Withdrawals from the RI tuition savings program that are included in federal AGI (except for nonqualified withdrawals).
  4. Contributions to the RI tuition savings program (subject to strict limits):
    • Annual aggregate subtraction cap: $500 per taxpayer, or $1,000 for joint filers.
    • Exclusions: contributions by non-participants, transfers/rollovers from other accounts, change of beneficiary.
    • Carryover contributions: carryover mechanism with specific rules for prior years, including joint filing allocation.
    • Requires reporting with RI tax return; special considerations if filing status changes.
  5. Modifications described in § 44-30-25.1(d)(1).
  6. Taxable income associated with insurance benefits paid to dependents (including domestic partnerships).
  7. Organ transplantation modification for qualifying unreimbursed expenses, allowing up to $10,000 subtraction (lifetime, non-residents excluded).
  8. Taxable Social Security income: staged reductions (inclusions) and inflation adjustments:
    • For 2016+ rules, depend on filing status and income thresholds (e.g., unmarried/head of household ≤$80k; joint/Qual. Widow ≤$100k); subtract portion of Social Security benefits includible in federal AGI.
    • Inflation-adjusted increases from 2022 onward; 25% (2027), 50% (2028), 75% (2029), 100% (2030) of Social Security benefits become subtractable.
  9. Modifications for taxable retirement income from pensions/annuities:
    • Gradual increases in allowable retirement income exclusions through 2025-2025+ (up to $50,000 by 2025 for individuals or joint filers under specific income thresholds).
    • Inflation adjustments similar to other sections; phased increases over time with eligibility based on income levels.
  10. Rhode Island investment in Opportunity Zones, to the extent of the federal benefit (increases RI deduction/income adjustments).
  11. Military service pensions: Subtraction of military service pension benefits from RI income starting in 2023; capped at the actual pension received.
  12. Rebate amounts: any rebates included in federal gross income are subtracted.
  13. For 2025 onward, certain deductions related to Schedule 280E adjustments for licensees; effectiveness tied to licensing in RI.

(d) Fiduciary Adjustments (Estates/Trusts)

  • RI fiduciary adjustment: addition or subtraction to reflect the beneficiary’s share of RI fiduciary adjustment per § 44-30-17.

(e) Partnership Rules

  • Partner-level modifications for items of income or deduction from partnerships governed by § 44-30-15.

3) What Would Be Affected

  • Rhode Island resident individuals (and by extension, part-year residents and nonresidents with RI-sourced income adjustments per section scope).
  • Beneficiaries of estates and trusts (fiduciary adjustments).
  • Partners in partnerships (through partnership-specific allocation rules).
  • Taxpayers with RI-registered tuition savings accounts (RS 16-57-6.1) and 529 plans.
  • Recipients of Social Security benefits, unemployment compensation, military pensions, and certain retirement income.
  • Taxpayers participating in RI Opportunity Zones and PPP loan forgiveness scenarios.
  • Individuals in the healthcare/licensing spaces affected by 280E-related provisions.

4) Procedural and Timeline Details

  • Effective date: Upon passage (immediate implementation), with phased provisions and inflation adjustments occurring for multiple sections (notably Social Security income treatment and certain retirement-income-related deductions starting in 2027–2030).
  • Social Security adjustments: 25% (2027), 50% (2028), 75% (2029), 100% (2030) of Social Security benefits become deductible from RI AGI, with inflation indexing thereafter.
  • Inflation adjustments: Many monetary thresholds (e.g., retirement income caps,.carried contributions, and Social Security deduction thresholds) are tied to inflation adjustments based on the Consumer Price Index using a 2000 base year.
  • Emergency rule provisions: For 2025 tax year, enactment of the “One Big Beautiful Bill Act” or similar Congressional changes could trigger emergency rules under RI law to preserve the RI tax base.

5) Practical Impact and Considerations

  • Substantial reduction in RI taxable income for many retirees and seniors due to the gradual exclusion of Social Security benefits from RI taxation, increasing to full exclusion by 2030.
  • Enhanced deductions/credit opportunities for contributions to RI tuition savings programs (with specific caps and carryover rules).
  • Broader inclusion of certain federal relief benefits and PPP-related forgiveness, with careful attention to thresholds and timing.
  • Complexity increases for filers due to multiple phase-ins, inflation-indexed adjustments, carryover provisions, and fiduciary/partnership computations.
  • Administrative and rulemaking considerations: the bill contemplates emergency regulations for 2025 tax year in light of federal enactments.

If you’d like, I can provide a section-by-section mapping (section numbers to provisions) or a quick Q&A-style briefing for specific taxpayer groups (retirees, savers, business owners).

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

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