The bill amends the Rhode Island General Laws regarding personal income tax. It revises the definition of "Rhode Island taxable income" to exclude certain increases in the basic standard deduction for married couples filing jointly, as per federal tax acts from 2001 and 2003. The bill adjusts Rhode Island personal income tax rates to 25.5% for the tax year 2001 and 25% for 2002 and thereafter, based on federal income tax rates prior to the enactment of the federal tax acts. It introduces an alternative flat tax rate option starting January 1, 2006, and details the Rhode Island alternative minimum tax, which is a percentage of the federal tentative minimum tax. The bill specifies tax rates for various filing statuses and includes provisions for inflation adjustments, maximum capital gains rates, itemized deductions, and standard deductions, with additional deductions for aged or blind individuals. It also sets the basic standard deduction for individual taxpayers and eliminates it for certain individuals, such as married individuals filing separately if either spouse itemizes deductions.

Furthermore, the bill imposes a tax equal to 25% of certain federal taxes and allows for the averaging of farm income for individuals in farming or fishing businesses. It outlines the cost-of-living adjustment based on the consumer price index, with 1986 as the base year. The bill also specifies rounding rules for tax increases and details credits against Rhode Island tax for taxpayers entitled to certain federal credits prior to January 1, 1996. Notably, the Rhode Island earned-income credit is increased from 16% to 30% of the federal credit for tax years beginning on or after January 1, 2025. The bill mandates the tax administrator to recalculate and submit revisions every three years and states that no other state and federal tax credits will be available except as provided in section 1. The changes to the earned-income tax credit are set to take effect upon passage.

Statutes affected:
7589: 44-30-2.6