As part of the Fiscal Year 2027 state budget, Rhode Island has enacted a new tax on high-income individuals. Commonly referred to as the “Millionaires Tax,” the new law imposes an additional tax on Rhode Island taxable income exceeding $1 million, beginning with the 2027 tax year.
How the New Tax Works
The legislation creates a fourth Rhode Island Individual tax bracket, increasing the top marginal tax rate from 5.99% to 8.99% through a three-year phase-in. The new rates on Rhode Island taxable income over $1 million are:
- 6.99% for tax year 2027
- 7.99% tax year 2028
- 8.99% for tax year 2029
Importantly, the higher tax rate applies only to Rhode Island taxable income exceeding $1 million. Income below that threshold continues to be taxed at the applicable lower rates.
Estates and Trusts
The legislation also applies the phased-in surtax to estates and trusts, but at a substantially lower taxable income threshold of $36,427 (adjusted annually for inflation). The additional tax will be phased in as follows:
- 1% beginning in 2027
- 2% beginning in 2028
- 3% beginning in 2029 and thereafter
Why Was the Millionaires Tax Enacted?
The General Assembly enacted the surtax to generate additional revenue to fund several priorities included in the FY 2027 budget, including:
- Rhode Island’s first Child Tax Credit
- Expansion of the Social Security income tax exemption
- Increased investments in K-12 and higher education
- Funding for healthcare initiatives
- Investments in housing and infrastructure
Planning Ahead
Although the new tax will affect a relatively small percentage of Rhode Island taxpayers, those who expect significant business income, investment income, or gains from the sale of appreciated assets should evaluate how the changes may impact their overall tax liability.
With the new tax taking effect in 2027, taxpayers have an opportunity to begin planning now. Depending on your circumstances, strategies such as accelerating or deferring income, timing the sale of appreciated assets, maximizing available deductions, or reviewing entity structures may help reduce the impact of the higher tax rate.
We’re Here to Help
If you expect your Rhode Island taxable income could exceed $1 million in future years, now is the time to begin planning. Our tax professionals can help you understand how the new law may impact your situation and develop strategies to minimize its effect.
For more information or to discuss your tax planning options, please call us at (401) 921-2000 or contact us here.