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Rhode Island Taxes: What You Need to Know

Federal, State, and Local Tax Withholding in Rhode Island in 2024

In 2024, Rhode Island residents will experience a complex array of tax withholdings, encompassing federal, state, and local taxes. Understanding these withholdings is essential for accurate financial planning and to ensure compliance with state and federal tax laws.

Federal Tax Withholding

Rhode Island adheres to the federal income tax structure, which features a progressive tax system with rates ranging from 10% to 37%. The federal income tax brackets for 2024 mean that individuals will pay different rates on their income, depending on their total earnings. For instance, lower earners might only be taxed at the 10% rate, while those with higher incomes will pay 37% on earnings exceeding a certain threshold.

The IRS requires employers to withhold a specific percentage of wages for federal income taxes based on the employee’s filing status and the number of allowances claimed on their W-4 forms. This withholding helps individuals meet their federal tax obligations without facing large tax bills when filing their annual returns.

• 10% on income up to $11,000
• 12% on income from $11,001 to $44,725
• 22% on income from $44,726 to $95,375
• 24% on income from $95,376 to $182,100
• 32% on income from $182,101 to $231,250
• 35% on income from $231,251 to $578,125
• 37% on income over $578,125

State Tax Withholding

Rhode Island has its own progressive state income tax system with rates that range from 3.75% to 5.99%. The tax brackets for single filers include:

• 3.75% on income up to $77,450
• 4.75% on income between $77,450 and $1,76,050
• 5.99% on income over $1,76,050

For married couples filing jointly, the income thresholds are higher, allowing for increased tax-free income before reaching higher tax rates. The Rhode Island Division of Taxation requires employers to withhold state income tax based on these rates, which is calculated similarly to federal withholding.

Local Taxes

Rhode Island does not impose any local income tax, which simplifies the tax structure for residents. This means that residents will only deal with federal and state taxes on their earnings, making tax planning more straightforward compared to states with additional local tax burdens.

In addition to income taxes, Rhode Island imposes a state sales tax of 7% on most goods and services. This tax is applied at the point of sale and is a significant source of revenue for the state, offsetting some of the costs of state-funded services.

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FICA & State Insurance Taxes in Rhode Island in 2024

In 2024, FICA taxes are mandatory for all Rhode Island residents, contributing to two essential federal programs: Social Security and Medicare. These taxes are automatically deducted from employees’ paychecks and are structured as follows:

Social Security Contributions

For 2024, the Social Security tax rate is 6.2% on wages up to $168,600. This wage base limit indicates the maximum amount of income that is subject to this tax. For example, if an employee earns $200,000 in 2024, they would only pay Social Security taxes on the first $168,600 of their income, resulting in a maximum contribution of approximately $10,454.

Medicare Contributions

Medicare tax is set at 1.45% on all wages without an upper limit, which means that every dollar earned is subject to this tax. Additionally, there is an extra 0.9% tax on income that exceeds $200,000 for single filers. Therefore, for high-income earners, the Medicare tax rate effectively increases to 2.35% on the income above this threshold.

Employer Contributions

Employers are required to match these FICA contributions. This means that for every dollar an employee pays into Social Security and Medicare, the employer also contributes the same amount. For instance, if an employee’s gross wages lead to a Social Security deduction of $500, the employer will also contribute an additional $500 to the Social Security fund. This shared contribution model helps sustain these critical programs, ensuring their viability for future generations.

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Pre-Tax Deductions (Medical Insurance, 401K, etc.) in Rhode Island in 2024

In 2024, Rhode Island residents have several options for pre-tax deductions that can significantly reduce their taxable income. These deductions not only lower the amount of income subject to federal and state taxes but also help employees save for healthcare and retirement. Here’s an overview of the key pre-tax deductions available:

1. Health Insurance Premiums

Contributions made by employees toward employer-sponsored medical, dental, and vision insurance plans can be deducted pre-tax. This means that the premiums are subtracted from gross income before taxes are calculated, resulting in a lower taxable income. This can lead to substantial tax savings, as the deductions reduce the overall tax burden. Additionally, many employers may offer health plans that include Health Reimbursement Arrangements (HRAs), which also qualify for pre-tax treatment.

2. 401(k) Contributions

Employees in Rhode Island can contribute up to $23,000 to their 401(k) retirement accounts in 2024. For individuals aged 50 and older, there is an additional catch-up contribution limit of $7,500, allowing for total contributions of $30,500. Contributions to a 401(k) are made on a pre-tax basis, meaning they lower the employee’s taxable income for the year in which they are made. This tax-deferral strategy enables employees to save for retirement while reducing their current tax liabilities.

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3. Health Savings Accounts (HSAs)

For those enrolled in high-deductible health plans (HDHPs), contributions to Health Savings Accounts (HSAs) can also be deducted pre-tax. The contribution limits for 2024 are $4,150 for individuals and $8,300 for families. HSAs provide a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.

4. Flexible Spending Accounts (FSAs)

Flexible Spending Accounts (FSAs) allow employees to set aside up to $3,050 pre-tax for qualified medical expenses. These funds can be used for a variety of health-related expenses, including copayments, deductibles, and certain over-the-counter medications. The pre-tax nature of these contributions helps to reduce taxable income, offering further savings.

Median Household Income in Rhode Island

As of 2023, the median household income in Rhode Island was approximately $84,972. This figure provides insight into the economic landscape of the state, highlighting the various sectors that contribute significantly to its economy, including healthcare, education, and manufacturing. Rhode Island’s diverse job market helps to support this median income level, reflecting a combination of stable employment opportunities and a relatively high cost of living.

The robust nature of Rhode Island’s economy, particularly in sectors like healthcare, which has seen expansion due to an aging population, and education, which includes both K-12 and higher education institutions, plays a critical role in supporting household incomes. Additionally, the manufacturing sector, though smaller than in some neighboring states, contributes to job creation and economic resilience.

Rhode Island Tax Brackets 2024

Rhode Island employs a progressive tax system designed to ensure that individuals with higher incomes contribute a larger share of their earnings to the state. This approach aims to promote equity in the tax system and support funding for public services and infrastructure. Here’s an overview of the tax brackets for single filers in 2024:For the 2024 federal income tax brackets, here’s a concise breakdown by filing status:

Single Filers:

• 10%: Up to $11,600
• 12%: $11,601 to $47,150
• 22%: $47,151 to $100,525
• 24%: $100,526 to $191,950
• 32%: $191,951 to $243,725
• 35%: $243,726 to $609,350
• 37%: Over $609,351

These brackets reflect a structured approach where individuals earning up to $77,450 are taxed at a lower rate, while those with higher incomes face increased rates. The middle bracket captures a significant portion of earners, ensuring that a fair contribution is made relative to income levels.
For married couples filing jointly in Rhode Island, the tax brackets are designed to accommodate higher income thresholds compared to single filers. This progressive tax structure ensures that families contribute a fair share based on their combined income. Here’s an overview of the tax brackets for married couples filing jointly in 2024:

Married Filing Jointly:

• 10%: Up to $23,200
• 12%: $23,201 to $94,300
• 22%: $94,301 to $201,050
• 24%: $201,051 to $383,900
• 32%: $383,901 to $487,450
• 35%: $487,451 to $731,200
• 37%: Over $731,201