Overview of Rhode Island Payroll Taxes for Employers

Understanding the framework of payroll taxation in Rhode Island begins with identifying the state agencies responsible for administration and the types of taxes employers are obligated to manage.

Key Administering Agencies

Two primary state agencies share responsibility for overseeing and administering payroll taxes in Rhode Island:

• Rhode Island Division of Taxation: This agency is tasked with the administration and collection of state income tax withholding from employee wages. It provides essential resources for employers, including the annual Withholding Tax Booklet which details calculation methods and tables, and manages the Rhode Island Tax Portal for mandatory electronic filing and payment of withholding taxes.
• Rhode Island Department of Labor and Training (DLT): The DLT is responsible for administering employer taxes related to Employment Security (Unemployment Insurance - UI), Temporary Disability Insurance (TDI), and the Job Development Fund (JDF). The DLT's Employer Tax Unit specifically handles employer registration for these taxes, processes quarterly tax and wage reports (Form TX-17), determines employer-specific UI tax rates, and manages collections for these programs. Notably, the Employer Tax unit was transferred from the Division of Taxation to the DLT effective April 11, 2022.

The division of responsibilities between these two agencies means that employers must navigate distinct systems and requirements for full payroll tax compliance. For instance, income tax withholding is reported and paid to the Division of Taxation, often using forms like the RI-941 and the state's Tax Portal, while UI, TDI, and JDF contributions are managed through the DLT, primarily via Form TX-17 and the DLT's online tax reporting system. This necessitates careful record-keeping and process management to ensure adherence to the mandates of both agencies, as failure to comply with one does not excuse obligations to the other.

Types of Payroll Taxes: A Snapshot

Employers in Rhode Island are responsible for several types of payroll taxes:

• State Income Tax Withholding: Under Rhode Island's pay-as-you-earn system, employers must withhold state income tax from wages paid to employees for work performed within the state. The amount withheld is based on the employee's earnings and allowances claimed on Form RI W-4.
• Unemployment Insurance (UI) Tax: This tax is paid by employers and contributes to a fund that provides temporary income support to eligible workers who have lost their jobs through no fault of their own.
• Temporary Disability Insurance (TDI): This program is funded through employee payroll deductions. Employers are responsible for withholding the designated percentage from employee wages and remitting these funds to the state. TDI provides benefits to workers who are unable to work due to a non-work-related illness or injury, and it also includes provisions for Temporary Caregiver Insurance (TCI).
• Job Development Fund (JDF) Tax: This tax is also paid by employers. The funds collected are used to support various workforce development initiatives and training programs managed by the Governor's Workforce Board.

Rhode Island Income Tax Withholding - 2025

State income tax withholding is a primary payroll responsibility for Rhode Island employers. The following sections detail the requirements for 2025.

Employer Registration and Identification

To comply with Rhode Island income tax withholding laws, employers must register with the state. The Federal Employer Identification Number (FEIN) issued by the U.S. Internal Revenue Service also serves as the employer's identification number for Rhode Island income tax withholding purposes.

Registration for an income tax withholding account, as well as for unemployment insurance and potentially sales tax, is accomplished electronically via the RI Division of Taxation Combined Online Registration Service, accessible at https://www.ri.gov/taxation/BAR/. This unified portal is designed to streamline the initial setup process for businesses. Upon successful registration, the Division of Taxation will issue a Portal Identification Number (PIN). This PIN is essential for employers to create an account and access the RI Tax Portal for subsequent electronic filing and payment of withholding taxes.

2025 Tax Rates, Brackets, and Exemption Amounts

Rhode Island utilizes a graduated income tax system. For 2025, the withholding formula, effective from Pay Period 02, 2025, incorporates specific rates, brackets, and exemption details. It is important to note that these figures are for calculating withholding on wages paid in 2025.

The annual exemption amount for withholding purposes is $1,000 per valid exemption claimed by an employee. However, this exemption is subject to a phase-out. For 2025, the annualized wage threshold at which the annual exemption amount begins to be eliminated has increased to $283,250. If an employee's annualized gross pay exceeds $283,250, the value of their exemptions for withholding calculation purposes becomes $0. This represents an increase from the 2024 phase-out threshold of $274,650. This upward adjustment means that some employees whose earnings fall between the old and new thresholds may retain the value of their exemptions, potentially resulting in slightly lower income tax withholding compared to the previous year, all other factors remaining equal. This underscores the dynamic nature of these tax parameters and the need for employers to use current-year figures.

For supplemental wages (such as bonuses, commissions, or overtime pay) paid separately from regular wages, or if an employer prefers a flat rate, the withholding rate for 2025 is 5.99%.

The following table summarizes the key components for Rhode Island income tax withholding calculations for 2025:

Source: RI Division of Taxation, 2025 Withholding Tax Booklet.

Withholding Calculations and Methods (Percentage, Wage Bracket Tables)

Employers have two primary methods, detailed in the "2025 Rhode Island Withholding Tax Booklet," to calculate the amount of state income tax to withhold from employee wages. This booklet is a critical resource published annually by the RI Division of Taxation.

• Percentage Method: This method requires a more direct calculation.
  1. First, determine the total value of withholding exemptions claimed by the employee by multiplying the number of exemptions by the per-exemption value for the specific payroll period (e.g., weekly, biweekly, monthly). For 2025, the weekly exemption value is $19.23, and the monthly value is $83.33 per exemption.
  2. Second, subtract this total exemption amount from the employee's gross wages for the payroll period to arrive at taxable wages.
  3. Third, apply the tax rates from the appropriate Percentage Method table (found in the 2025 Withholding Tax Booklet, Tables 1-8 on page 10) corresponding to the employee's payroll period and taxable wage amount.
• Wage Bracket Method: This method offers pre-calculated withholding amounts.
  1. The 2025 Withholding Tax Booklet contains a series of tables (pages 11-20) for different payroll frequencies (Weekly, Biweekly, Semimonthly, Monthly, and Daily/Miscellaneous).
  2. Employers locate the wage bracket into which an employee's gross wages fall for that pay period and then find the corresponding withholding amount based on the number of withholding allowances the employee has claimed on their Form RI W-4.

  These wage bracket tables typically cover wages up to a certain threshold for each pay frequency. If an employee's wages exceed this threshold, the employer must use the Percentage Method for calculation.

The choice of method often depends on the employer's payroll system capabilities and preference. Many modern payroll software systems can automate these calculations using either method once programmed with the correct state tax parameters.

Form RI W-4: Employee's Withholding Allowance Certificate

A critical aspect of Rhode Island income tax withholding is the mandatory use of the state-specific Form RI W-4, Employee's Withholding Allowance Certificate. Since January 1, 2020, employers can no longer rely solely on the federal Form W-4 for determining Rhode Island state income tax withholding. This state-specific requirement necessitates distinct onboarding procedures for employees working in Rhode Island and careful maintenance of these state forms, separate from federal W-4 management.

Key points regarding Form RI W-4 for 2025 include:

• Purpose: Employees use Form RI W-4 to declare their number of personal allowances (which includes allowances for dependents) and to specify any additional dollar amount they wish to have withheld from their pay.
• Allowances: The form guides employees through calculating their allowances. A maximum of 10 personal allowances can be claimed on Line 1E of the 2025 Form RI W-4.
• Exempt Status: Employees who meet specific conditions to claim exemption from Rhode Island withholding (e.g., no tax liability in the prior year and expect no tax liability in the current year, or certain military spouses under the Military Spouses Residency Relief Act) must indicate "EXEMPT" or "EXEMPT-MS" on Form RI W-4. Importantly, employees claiming an exempt status must complete and submit a new Form RI W-4 each year to maintain that status. This annual re-filing requirement adds an ongoing tracking responsibility for employers.
• Multiple Jobs/Working Spouse: For employees with multiple jobs or whose spouse also works, Form RI W-4 advises that withholding accuracy is generally improved if all allowances are claimed on the Form RI W-4 for the highest-paying job, and zero allowances are claimed on RI W-4 forms for other jobs.
• Submission: Employees should complete Form RI W-4 when they begin employment, wish to change their withholding allowances, or if they are claiming exempt status annually. Employers are required to keep these forms on file.

The official 2025 Form RI W-4 is available from the RI Division of Taxation.

Filing and Payment: Frequencies, Deadlines, and Electronic Mandates

Employers are required to remit withheld Rhode Island income taxes and file associated returns according to a schedule determined by the total amount of tax withheld. The RI Division of Taxation typically notifies employers of their designated payment frequency at the beginning of each tax year.

Payment Frequencies:

• Weekly: Required if an employer withholds $600 or more in any calendar month. Payment is due on the next banking day following the end of the withholding week (Sunday to Saturday). For example, taxes withheld for a week ending Saturday are generally due Monday, unless Monday is a banking or state holiday, in which case the due date shifts to Tuesday.
• Monthly: Required if an employer withholds $50 or more but less than $600 in any calendar month. For non-quarter-ending months (e.g., January, February, April), payment and Form WTM/RI-941M are due by the 20th day of the following month. For quarter-ending months (March, June, September, December), the tax for the third month of the quarter is reconciled and paid with Form RI-941 by the last day of the month following the quarter's end.
• Quarterly: Required if an employer withholds less than $50 in any calendar month. Payment and Form RI-941 are due on or before the last day of the month following the close of the quarter.

Electronic Filing and Payment Mandate: Rhode Island has a significant electronic filing and payment mandate for withholding taxes. Employers must file returns and remit payments electronically via the RI Tax Portal if they meet any of the following conditions:

• The employer's average Rhode Island withholding for the previous calendar year was $200 or more per month; OR
• The employer operates as a business whose combined annual liability for all taxes administered by the RI Division of Taxation is equal to or exceeds $5,000; OR
• The employer operates as a business whose annual gross income is over $100,000.

Specifically, Weekly filers MUST pay electronically. Monthly filers withholding $200 or more but less than $600 MUST file and pay electronically. The thresholds for this mandate are relatively low, meaning a substantial number of small and medium-sized businesses, not just large corporations, are likely required to use the Tax Portal. This reflects a clear state directive towards digitalization of tax administration, and non-compliance can result in penalties.

Forms:

• Form WTM/RI-941M (Withholding Tax Return Monthly): Used by monthly filers for the first two months of each quarter.
• Form RI-941 (Employer's Quarterly Tax Return and Reconciliation): Used by all quarterly filers. Monthly filers also use this form to reconcile and pay for the third month of each quarter.

Source: RI Division of Taxation materials.

Annual Reconciliation (Form RI W-3)

At the end of each calendar year, employers are required to reconcile the total amount of Rhode Island income tax withheld throughout the year. This is done using Form RI W-3, Transmittal of Wage and Tax Statements.

• Due Date: Form RI W-3, along with copies of all employee W-2 forms showing Rhode Island withholding, must be filed with the RI Division of Taxation by January 31 of the following year. This deadline also applies if a business terminates its operations during the year.
• Purpose: The form summarizes the total state income tax reported as withheld on all Forms W-2 issued to employees for the year. The total amount shown on Form RI W-3 should precisely match the total payments remitted to the Division of Taxation throughout the year via weekly, monthly, or quarterly submissions. It also serves as a transmittal for the state copies of Forms W-2.
• Electronic Filing Mandate: If an employer is subject to the electronic filing and payment mandate for their regular withholding tax deposits (as described in section III.E), they are also required to file Form RI W-3 electronically. Failure to do so when required can result in penalties.

Department of Labor and Training (DLT) Employer Taxes - 2025 Deep Dive

Employers in Rhode Island are also responsible for taxes administered by the Department of Labor and Training (DLT), specifically Unemployment Insurance (UI) tax, Temporary Disability Insurance (TDI) withholdings, and Job Development Fund (JDF) tax. These are typically reported and paid together on the Form TX-17, Quarterly Tax and Wage Report. It's important to remember that the DLT's Employer Tax Unit, now located at 1511 Pontiac Ave, Cranston, RI 02920-0942, assumed responsibility for these taxes from the Division of Taxation in April 2022.

Unemployment Insurance (UI) Tax

UI tax is an employer-paid tax that funds benefits for eligible individuals who become unemployed. The amount of UI tax an employer pays depends on their assigned tax rate and the amount of wages paid to employees up to the annual taxable wage base.

2025 Taxable Wage Base:

The UI taxable wage base is the maximum amount of an employee's annual wages subject to UI tax. For 2025:

• For most employers, the UI taxable wage base is $29,800 per employee. This is an increase of $600 from the 2024 base of $29,200.
• For employers assigned the highest UI tax rate (9.7% before the JDF offset, or those with an experience rate of 9.49% or higher), the UI taxable wage base is set $1,500 higher, at $31,300 per employee for 2025.

The UI taxable wage base is statutorily set at 46.5% of the average annual wage of workers in covered employment, meaning it is subject to change based on wage trends in the state. The continued upward movement of this base indicates rising average wages in Rhode Island.

2025 UI Tax Rates:

UI tax rates in Rhode Island are determined by an employer's experience rating, which reflects their history of unemployment claims.

• For 2025, UI Tax Schedule G remains in effect. This schedule features rates ranging from 1.1% to 9.7%.
• However, these statutory rates are reduced by 0.21% to account for the Job Development Assessment (JDA). Therefore, the effective UI tax rates for experienced employers in 2025 will range from 0.89% (1.1% - 0.21%) to 9.49% (9.7% - 0.21%).
• The New Employer Rate for 2025 is 1.21%. This rate is also reduced by the 0.21% JDA, resulting in an effective new employer rate of 1.00%.

Employers are notified annually by the DLT of their specific UI tax rate for the upcoming year. This rate can also be accessed through the DLT's online employer portal.

Job Development Fund (JDF) Offset:

As mentioned, the 0.21% Job Development Fund tax (discussed further in section IV.C) is structured as an offset against the employer's calculated UI tax liability. This mechanism ensures that the JDF is funded without imposing an additional net tax burden on employers for this specific assessment, as their UI tax obligation is directly reduced by this amount.

The variable nature of UI tax rates, tied to individual employer experience ratings, means that a company's efforts to manage workforce stability and control unemployment claims can have a direct impact on their UI tax costs. The consistent increase in the taxable wage base, however, is a factor largely outside an individual employer's control, being driven by statewide wage trends.

Temporary Disability Insurance (TDI) Program

The Temporary Disability Insurance (TDI) program in Rhode Island provides wage replacement benefits to workers who are unable to work due to a non-work-related illness or injury. The program also encompasses Temporary Caregiver Insurance (TCI), which offers benefits for bonding with a new child or caring for a seriously ill family member. TDI is distinct in that it is funded by employee payroll deductions, for which employers are responsible for withholding and remitting to the DLT.

2025 TDI Taxable Wage Base:

For calendar year 2025, the TDI taxable wage base is $89,200 per employee. This is an increase of $2,200 from the 2024 TDI taxable wage base of $87,000.

2025 Employee Contribution Rate:

The employee contribution rate for TDI for calendar year 2025 is 1.3% of taxable wages. This is an increase from the 1.2% rate in 2024.

The combination of an increased taxable wage base and an increased contribution rate means that employees will see a larger TDI deduction from their paychecks in 2025. The maximum TDI contribution an employee will pay in 2025 is $1,159.60 ($89,200 * 0.013), up from $1,044 in 2024. For an employee working full-time at the minimum wage of $15.00 per hour, the total TDI contribution in 2025 will be $405.60, or $7.80 per week.

It is important for employers to note that workers aged 14 and 15 are exempt from TDI wage deductions and coverage. Additionally, TDI benefits received by claimants are not subject to Federal or State income taxes, whereas TCI benefits are taxable.

The upward adjustments in both the TDI wage base and contribution rate signal increasing costs or utilization within the program. Employers must ensure their payroll systems are accurately updated to reflect these 2025 changes to avoid incorrect withholdings and to clearly communicate these state-mandated changes to their employees. The importance of timely system updates is underscored by discussions in business forums, such as a QuickBooks community thread where users inquired about the software update for the new TDI rate.

Job Development Fund (JDF) Tax

The Job Development Fund (JDF) tax is an employer-paid assessment that supports the initiatives of the Rhode Island Governor's Workforce Board, along with other employment services and unemployment insurance activities.

2025 JDF Tax Rate:

The JDF tax rate for 2025 remains at 0.21%.

2025 JDF Taxable Wage Base:

The JDF taxable wage base mirrors the UI taxable wage base. For 2025, this is $29,800 per employee for most employers, and $31,300 per employee for those at the highest UI tax rate.

As previously noted, the 0.21% JDF assessment is offset against the employer's UI tax rate, meaning it does not typically result in a net increase in the employer's combined UI/JDF tax burden.

Registration, Reporting (Form TX-17), and Payment for DLT Taxes

Employers in Rhode Island register for UI, TDI, and JDF tax accounts simultaneously with their income tax withholding registration through the RI Division of Taxation Combined Online Registration Service. Upon registration, the DLT will assign the employer a unique account number for these DLT-administered taxes.

Reporting: Employers are required to file Form TX-17, Quarterly Tax and Wage Report, with the DLT. This form is used to report total wages paid, taxable wages for UI and JDF purposes, calculate UI and JDF contributions due, and report and remit the TDI contributions withheld from employee paychecks.

Due Dates: Form TX-17 and the accompanying tax payments are due on a quarterly basis, by the last day of the month following the end of each calendar quarter:

• Quarter 1 (Jan-Mar): Due April 30
• Quarter 2 (Apr-Jun): Due July 31
• Quarter 3 (Jul-Sep): Due October 31
• Quarter 4 (Oct-Dec): Due January 31

Payment Methods: Payments to the DLT for these taxes can be made by business check, personal check, money order, or via the Automated Clearinghouse (ACH) credit method (which requires a completed application). An ACH debit payment option is also available for employers who file their TX-17 online, provided their banking information has been verified by the DLT (a one-time, multi-day process). Credit card payments are not accepted for these taxes.

Electronic Filing: Employers can, and are often encouraged to, file their quarterly Form TX-17 reports electronically through the DLT's Employer Wage Tax Filing website, accessible at https://www.ri.gov/taxation/tx17/.

The DLT often includes reminders for employers to verify their assigned UI tax rate prior to making payments, as these rates are experience-rated and can change annually. This proactive checking, often via the DLT online portal, can prevent overpayments or underpayments. This emphasis suggests that errors in applying the correct, individualized UI tax rate may be a recurring issue for some employers, highlighting the importance of diligence in confirming this information each year.

Source: RI Department of Labor & Training.

Employer Compliance Essentials

Beyond understanding tax rates and bases, employers must adhere to several key compliance requirements to avoid penalties and ensure fair treatment of employees.

Pay Stub Requirements: Ensuring Transparency

Rhode Island law mandates specific information be provided to employees on their pay stubs, fostering transparency in wage calculation and deductions. While the federal Fair Labor Standards Act (FLSA) requires employers to maintain detailed records of hours worked and wages paid, it does not federally mandate the provision of pay stubs to employees. Rhode Island law, however, goes further by requiring these itemized statements.

According to R.I. Gen. Laws § 28-14-2.1, every employer must furnish to each employee on every regular payday a statement that includes:

• Hours Worked: The total hours worked by the employee during the applicable pay period. This requirement does not apply to employees who are exempt from overtime under § 28-12-4.3 (typically salaried executive, administrative, or professional employees).
• Deductions: A record of all deductions made from the employee's gross earnings during that pay period. Crucially, this must be accompanied by an explanation of the basis or reason for each deduction. This level of detail ensures employees understand where their money is going.
• Hourly Regular Rate (Commercial Construction): For employers engaged exclusively in the commercial construction industry, the pay statement must also include a record of the employee's hourly regular rate of pay.

Pay statements can be provided to employees as an electronic record. However, employees have the right to request a printed or handwritten record (a paper copy) at no cost, provided they give written authorization to the employer for this preference. This dual-format provision means employers must have systems capable of generating electronic stubs while also being prepared to produce paper copies upon request.

Clear communication regarding deductions is particularly important for items like TDI, ensuring employees understand how much is being allocated to fund their coverage. Adherence to these pay stub requirements is not just a matter of legal compliance but also contributes to employee trust and understanding of their compensation.

Penalties for Non-Compliance

Failure to comply with Rhode Island's payroll tax laws can lead to significant financial penalties, assessed by both the Division of Taxation (for income tax withholding) and the Department of Labor and Training (for UI, TDI, and JDF taxes).

Division of Taxation (Withholding Tax):

The Division of Taxation imposes penalties for various infractions related to income tax withholding:

• Interest on Late Payments: If an employer fails to remit withheld taxes by the prescribed due dates, interest may be assessed at the current annual rate on the unpaid amount.
• Failure to Use Electronic Means for Payment (when required): Employers mandated to pay withholding taxes electronically who fail to do so can be penalized 5% of the tax payment that was not submitted electronically, or $500, whichever is less. This penalty may be waived if the failure was due to reasonable cause and not willful neglect.
• Failure to Use Electronic Means for Filing Returns (when required): Similarly, if a mandated employer fails to file a withholding tax return electronically, a penalty of $50 can be assessed, unless reasonable cause is demonstrated. The 2025 Withholding Tax Booklet further emphasizes that employers required to file and pay electronically will be subject to penalties for failure to comply.

Department of Labor and Training (UI, TDI, JDF Taxes):

The DLT has a structured set of penalties for non-compliance with UI, TDI, and JDF tax obligations, primarily reported on Form TX-17:

• Failure to File Quarterly Tax Reports (Form TX-17) by Due Date: A penalty of $25.00 is assessed for each late report.
• Failure to Make Contributions by Due Date: A penalty of 10% of the taxes due for each fund (UI, TDI, and JDF separately) is assessed.
• Interest on Delinquent Contributions: Interest accrues at a rate of 1.5% per month on unpaid contributions.
• Failure to File Quarterly Wage Information by Due Date: A separate penalty of $25.00 is assessed for each failure or refusal to file the required detailed wage information. An additional $25.00 is assessed for each month this information remains delinquent, up to a maximum of $200.00 per report.
• Waiver of Penalties: The DLT states that the law generally does not grant it discretionary power to waive penalties for late filing of reports. This indicates a strict stance and limited recourse for employers in such instances.
• Employer Liability for Unremitted TDI: If an employer fails to deduct TDI contributions from employee wages at the time of payment or by the next payroll period, the employer becomes solely liable for those contributions.

It is evident that penalties can be multi-faceted and cumulative, particularly for DLT-administered taxes where a single missed deadline could trigger penalties for late report filing, late payment for multiple funds, interest, and late wage data submission. This underscores the critical importance of robust internal controls, meticulous record-keeping, and strict adherence to all deadlines and procedural mandates from both state agencies.

Source: RI Division of Taxation & RI DLT publications.

Historical Trends in Rhode Island Payroll Taxes (2020-2024)

Analyzing payroll tax trends from 2020 to 2024 provides valuable context for understanding the 2025 landscape and anticipating future shifts. This period was marked by significant economic events, notably the COVID-19 pandemic, and various legislative and administrative responses.

Income Tax Withholding Adjustments (Brackets, Deductions, Exemptions)

Rhode Island's personal income tax system has seen consistent, albeit gradual, adjustments to its brackets, standard deductions, and exemption phase-out thresholds, largely driven by statutory requirements for inflation indexing.

Tax Year 2024 (for returns filed in 2025):

• Tax Rates: 3.75% (taxable income $0-$77,450), 4.75% ($77,451-$176,050), 5.99% (over $176,050).
• Standard Deductions: Single $10,550; Married Filing Jointly (MFJ) $21,150; Head of Household (HOH) $15,850. Phase-out range: $246,450-$274,650.
• Personal Exemption: $4,950 (subject to the same phase-out as standard deductions).

Tax Year 2023 (for returns filed in 2024):

• Tax Rates: 3.75% ($0-$73,450), 4.75% ($73,451-$166,950), 5.99% (over $166,950).
• Standard Deductions: Single $10,000; MFJ $20,050; HOH $15,050. Phase-out range: $233,750-$260,550.
• Personal Exemption: $4,700 (subject to phase-out).

Tax Year 2022 (for returns filed in 2023):

• Tax Rates: 3.75% (taxable income $0-$68,200), 4.75% ($68,201-$155,050), 5.99% (over $155,050).
• The annual withholding exemption amount for payroll calculations was $1,000.

Tax Year 2021 (for returns filed in 2022):

Specific income tax bracket details for 2021 tax returns are not fully itemized in the provided materials, but the 2021 Withholding Tax Booklet would have contained the relevant withholding tables and percentage method calculations.

Tax Year 2020 (for returns filed in 2021):

• Tax Rates: 3.75% (taxable income $0-$65,250), 4.75% ($65,251-$148,350), 5.99% (over $148,350).
• This year marked two significant administrative changes:
  • Mandatory Form RI W-4: Effective January 1, 2020, employers were required to use the state-specific Form RI W-4 for employee withholding allowances.
  • Expanded Electronic Filing Mandate: Also effective January 1, 2020, employers with an average Rhode Island withholding of $200 or more per month were mandated to file returns and remit payments electronically.

The year-over-year increases in income thresholds for tax brackets and in standard deduction amounts reflect the state's mechanism for providing some tax relief against inflation, as mandated by statute. Concurrently, the 2020 administrative changes signaled a clear policy shift towards greater state-specific control over withholding documentation and a strong push for digitalization in tax administration. Employers have thus experienced both gradual, inflation-linked adjustments to tax parameters and more distinct shifts in compliance procedures.

UI, TDI, and JDF Rate and Wage Base Evolution

The components of DLT-administered employer taxes also saw notable changes between 2020 and 2024, heavily influenced by the economic climate.

Job Development Fund (JDF) Rate: This rate remained consistently at 0.21% throughout the 2020-2025 period and continued to be applied as an offset to the UI tax.

Source: RI DLT publications. Note on 2020 TDI: ADV 2020-63 indicates the 2020 TDI rate was 1.3% and taxable wage base was $72,300. The 2024 "Highest Rate Employers" UI wage base is estimated based on the consistent "$1,500 higher" rule.

Impact of Economic and Legislative Factors (e.g., COVID-19, UI Trust Fund status)

The period between 2020 and 2024 was profoundly shaped by the COVID-19 pandemic and subsequent economic repercussions, which directly impacted Rhode Island's payroll tax system, particularly Unemployment Insurance.

The pandemic triggered an unprecedented surge in UI claims starting in March 2020, leading to a significant depletion of the state's UI trust fund balance. The fund dropped from approximately $525.9 million in January 2020 to $258.2 million by August 2022. This erosion of the trust fund had a direct consequence for employers: the UI tax rate schedule automatically shifted to a higher tier, moving from Schedule F in 2020 to the more costly Schedule H for calendar years 2021 and 2022. This change was estimated to cost Rhode Island businesses an additional $31 million in UI taxes during that period.

In response to these pressures and to prevent even more drastic increases in employer UI taxes, state leadership took several actions. In 2021, Governor McKee issued executive orders that provided flexibility in the calculation date for 2022 UI tax rates and allowed the DLT to hold the UI taxable wage base at the 2021 level for 2022. These measures were intended to allow the UI trust fund more time to recover and to avoid using pandemic-distorted wage data that would have artificially inflated the taxable wage base.

A more substantial intervention occurred in September 2022, when $99.97 million in American Rescue Plan Act (ARPA) State Fiscal Recovery Funds (SFRF) was deposited into the UI trust fund. This infusion was specifically aimed at shoring up the fund's balance. An infusion of at least $78.6 million was needed to allow the UI tax rate schedule to move from Schedule H down to the less costly Schedule G. With the ARPA funds, this was achieved for calendar year 2023, providing direct tax relief to many businesses. Of the businesses paying UI taxes, approximately 24,595 benefited from this schedule reduction in 2023.

This sequence of events—economic shock leading to fund depletion, followed by higher tax rates, and then governmental intervention to mitigate those rates—illustrates the sensitivity of the UI system to economic conditions and the potential for policy actions to influence employer tax burdens. It underscores a key consideration for employers: UI tax costs are not static and can be significantly affected by broader economic downturns that increase unemployment claims and strain the trust fund.

Administratively, this period also saw the transfer of the DLT Employer Tax unit from the Division of Taxation back to the DLT in April 2022, consolidating UI, TDI, and JDF tax administration under one roof within the DLT.

On the income tax side, legislative changes included an increase in the pension modification (exemption for retirement income) in 2022, raising it from $15,000 to $20,000 for eligible taxpayers.

The Future of Rhode Island Payroll Taxes: Beyond 2025

Looking ahead, several factors could influence the trajectory of Rhode Island's payroll taxes, including proposed legislation, the state's overall budget and revenue situation, and broader economic forecasts.

Proposed Legislative Changes

The Rhode Island General Assembly regularly considers legislation that could impact taxation. One notable proposal with direct implications for income tax withholding beyond 2025 is currently under consideration.

Analysis of S0329/H5473: Potential Income Tax Surcharge for High Earners (from 2026)

The Proposal: Identical bills, Senate Bill S0329 and House Bill H5473, propose the introduction of an additional 3% personal income tax surcharge on Rhode Island taxable income exceeding approximately $625,000 (this threshold would be in 2025 dollars and adjusted annually for inflation). If enacted, this surcharge would apply to tax years beginning on or after January 1, 2026, and would not be retroactive. This measure would effectively establish a fourth, higher tax bracket, increasing the top marginal personal income tax rate in Rhode Island from its current 5.99% to 8.99%.

Legislative Status:

• H5473 (House Bill): Introduced on February 12, 2025, and referred to the House Finance Committee. On May 6, 2025, the committee recommended that the measure be held for further study. In legislative practice, being "held for further study" often indicates that a bill is unlikely to advance further in the current legislative session.
• S0329 (Senate Bill): Introduced on February 21, 2025, and referred to the Senate Finance Committee. A hearing on the bill was scheduled for May 29, 2025. The available information does not specify the outcome of this hearing or subsequent committee action, indicating it likely remains pending in the Senate Finance Committee.

Context and Rationale: While proponents' specific arguments are not detailed in the provided materials, such proposals are typically aimed at increasing state revenue, often from individuals perceived as having a greater ability to pay, potentially to fund specific state programs or address budget shortfalls.

Analysis and Potential Impacts (from Rhode Island Public Expenditure Council - RIPEC & Tax Foundation):

Both RIPEC and the Tax Foundation have raised concerns about the potential negative economic and fiscal consequences of such a tax increase:

• Existing Progressivity: Rhode Island's current income tax system is already considered highly progressive. In 2022, the top 1.1% of tax filers (those with adjusted gross income of $500,000 or more) paid 34.6% of the state's total personal income tax liability.
• National Trends: The proposal runs counter to a prevailing trend in many other states, where top income tax rates have been reduced since 2020.
• Tax Competitiveness: Enacting this surcharge would significantly worsen Rhode Island's standing in national tax competitiveness rankings. The Tax Foundation estimated that if this proposal had been in effect for their 2025 Index, Rhode Island's overall rank would have fallen from 30th to 43rd, and its individual income tax component rank from 30th to 44th. This could make the state less attractive regionally, particularly when compared to states like Massachusetts, whose higher top rate applies at a much higher income threshold (over $1 million).
• Impact on Small Businesses: A significant portion (over half in 2022) of Rhode Island's high-income earners report business income, often through pass-through entities (like S corporations, partnerships, LLCs) where business profits are taxed at the individual owner level. Thus, a higher personal income tax rate directly impacts these businesses' operational costs, investment capacity, and potentially job creation.
• Risk of Out-Migration: There is concern that a substantially higher top tax rate could incentivize high-income individuals and the businesses they own or invest in to relocate to states with more favorable tax climates. These individuals often contribute disproportionately not only in taxes but also through local investment, entrepreneurship, and philanthropic activities.
• Current Revenue Growth: Notably, Rhode Island's personal income tax revenues have demonstrated robust growth in recent years without such a rate hike. From FY 2019 to FY 2025, these revenues grew at an average annual rate of 6.2%, and are projected to continue growing by 7.4% in FY 2025 and 4.0% in FY 2026. This strong performance, even amidst economic fluctuations, suggests that the proposed surcharge might be driven by policy objectives beyond immediate revenue crises, although projected future budget deficits are a known concern.

The proposal for a high-earner income tax surcharge represents the most significant potential change on the horizon for Rhode Island's direct payroll-related tax system. Given that H5473 was held for further study, the immediate prospects of the surcharge becoming law appear diminished for the 2025 legislative session. However, its introduction and the ongoing debate surrounding it are important for employers, particularly those with highly compensated employees or those structured as pass-through entities, to monitor for future legislative sessions.

Status and Implications of Other Relevant Legislation

A review of other legislative activity during the 2025 session indicates various bills related to taxation, insurance, and state finance. However, most of these appear to be targeted at specific exemptions, credits, or procedural adjustments rather than having the broad, direct impact on general payroll tax obligations comparable to the proposed income tax surcharge.

The state's annual budget process itself is a key avenue through which tax provisions can be introduced or modified. For instance, legislative discussions in early 2024 (related to the FY2025 budget) included items such as increasing the pension income modification (which was enacted), reducing the corporate minimum tax, extending net operating loss carryforward periods, and making changes to cannabis taxes and the pass-through entity tax credit. While not all of these are direct "payroll" taxes, alterations to the broader business tax environment can indirectly influence the resources businesses have available for payroll, benefits, and employment growth.

Rhode Island FY 2026 Budget Outlook and Revenue Projections: Impact on Payroll Taxes

The fiscal health of the state is a critical factor influencing tax policy. For Fiscal Year 2026 (which begins July 1, 2025), Rhode Island is facing a projected state budget deficit, estimated at approximately $297.8 million by the Office of Management and Budget (OMB) as of November 2024 (an improvement from an earlier projection of $398.2 million). This projected deficit is largely attributed to the state's prior use of substantial one-time federal pandemic relief funds (like ARPA SFRF) and budget surpluses to cover recurring operating expenses.

State general revenue spending experienced considerable growth between FY 2019 and FY 2025, increasing by an average of 7.1% annually. The Governor's proposed FY 2026 budget totals $5.743 billion in general revenue and aims to address a deficit of roughly $250 million (a slightly different figure than the OMB's November estimate) without resorting to broad-based tax increases.

However, looking further out, the state's five-year forecast projects that average annual revenue growth (estimated at 2.5% to 2.8%) will likely be outpaced by average annual expenditure growth (estimated at 3.6% to 3.7%). This structural imbalance is projected to lead to increasing out-year deficits, potentially reaching $397.8 million by FY 2030.

This challenging fiscal environment, characterized by projected deficits, creates inherent pressure on policymakers to find solutions, which typically involve spending reductions, revenue enhancements, or a combination of both. While the current administration has expressed a preference for avoiding broad tax hikes, the persistence of structural deficits could make revenue-generating proposals, such as the high-earner income tax surcharge (S0329/H5473), subject to more serious consideration or renewed debate in future legislative sessions as a means to bridge these fiscal gaps.

Economic Forecasts and Potential Effects on UI Trust Fund and TDI Program

The stability and rates associated with the Unemployment Insurance (UI) Trust Fund and the Temporary Disability Insurance (TDI) program are intrinsically linked to the state's economic performance.

As demonstrated during the COVID-19 pandemic, the health of the UI Trust Fund is highly sensitive to employment levels and economic shocks. Future economic downturns that lead to increased unemployment could once again strain the fund. This could necessitate increases in employer UI tax rates (through shifts to higher tax schedules) or require further state or federal intervention to maintain fund solvency, similar to the actions taken between 2020 and 2023. Employers should therefore view their UI tax contributions not as a fixed cost but as a variable one, susceptible to broader economic cycles.

The TDI program's financial status, which influences the employee contribution rate and the taxable wage base, is also affected by economic and demographic factors. These include wage growth (as the taxable wage base is linked to average earnings to qualify for maximum benefits), utilization rates of disability and caregiver benefits, and population demographics. The increase in both the TDI rate (from 1.2% to 1.3%) and the taxable wage base (to $89,200) for 2025 may reflect underlying cost pressures or increased demand within the program.

Recent economic analyses, such as those by RIPEC, have noted that while Rhode Island's income tax revenues experienced robust growth from FY 2019 to FY 2025, there are signs of a cooling in general revenue growth across many states. This is attributed to factors like relatively weaker stock market performance and a slowdown in inflation and consumption. Any significant slowdown in Rhode Island's economic growth could impact employment levels and wage growth, thereby affecting the revenue streams for both the UI and TDI programs.

Consequently, while the 2025 rates for these DLT-administered programs are set, employers and employees should remain aware that future economic shifts beyond 2025 could trigger adjustments to these payroll tax components in subsequent years.

Strategic Considerations and Recommendations for Employers

Navigating Rhode Island's payroll tax landscape effectively requires proactive planning, diligent compliance, and an awareness of potential future changes. Based on the analysis presented, employers should consider the following strategic actions:

• Budgeting and Financial Planning: Accurately incorporate all known 2025 payroll tax changes into financial forecasts and budgets. This includes the increased UI and TDI taxable wage bases, the higher TDI employee contribution rate, and the 2025 income tax withholding parameters. Closely monitor legislative developments, particularly any renewed efforts regarding the income tax surcharge for high earners (S0329/H5473 or similar proposals), as these could significantly impact future labor costs and net pay for affected employees.
• Payroll System Updates: Ensure that payroll systems and software are updated timely and accurately to reflect all 2025 rates, wage bases, and income tax withholding tables. Delays in system updates can lead to incorrect withholdings and subsequent corrections. Verify that systems correctly handle the mandatory Rhode Island Form RI W-4 for all employees.
• Compliance and Due Diligence: Establish and maintain robust internal processes to ensure adherence to all filing and payment deadlines for both the RI Division of Taxation and the RI Department of Labor and Training. Pay particular attention to the electronic filing and payment mandates, as failure to comply carries specific penalties. Regularly verify the company-specific UI tax rate assigned by the DLT, preferably through the DLT's online employer portal, before submitting quarterly TX-17 payments to avoid over or underpayments.
• Employee Communication: Clearly communicate any changes in payroll deductions to employees. For 2025, this is especially relevant for the increased TDI withholding resulting from the higher rate and wage base. Ensure pay stubs are compliant with Rhode Island law, providing detailed explanations for all deductions.
• Advocacy and Monitoring: Stay informed about proposed tax legislation, state budget discussions, and economic forecasts that could impact payroll taxes. Engage with business associations or utilize resources from organizations like RIPEC to understand the potential effects of policy changes on business operations and payroll costs.
• Review Worker Classification: Periodically review the classification of workers to ensure that individuals are correctly identified as employees versus independent contractors. Misclassification can lead to significant liabilities for back payroll taxes (income tax withholding, UI, JDF), as well as interest and penalties.
• Explore Business Incentives: While this report focuses on payroll tax obligations, employers should also investigate business incentive programs offered by the state, primarily through Rhode Island Commerce. Although direct payroll tax relief incentives are not prominent, various tax credits and financing programs for job creation, investment, or specific industries might be available to help offset overall business costs.

By taking these strategic considerations into account, employers can better manage their payroll tax responsibilities, mitigate risks of non-compliance, and adapt to the evolving tax environment in Rhode Island.

Appendix: Key Forms and Resources

This appendix provides a list of essential tax forms and contact information for the relevant state agencies to assist employers in meeting their Rhode Island payroll tax obligations.

List of Essential Tax Forms

Rhode Island Division of Taxation:

• Form RI W-4 (Employee's Withholding Allowance Certificate): Mandatory for determining RI income tax withholding. The 2025 version is available.
• Form RI-941 (Employer's Quarterly Tax Return and Reconciliation): Used by quarterly filers and monthly filers for quarter-end reconciliation and payment.
• Form WTM/RI-941M (Withholding Tax Return Monthly): Used by monthly filers for non-quarter-ending months.
• Form RI W-3 (Transmittal of Wage and Tax Statements): Annual reconciliation of income tax withheld, filed with W-2 forms.
• 2025 Rhode Island Withholding Tax Booklet: Contains detailed withholding tables, calculation methods, and instructions. Accessible via the Division of Taxation website.
• 2025 Withholding Tax Due Date Calendar: Provides a schedule of due dates for withholding tax payments. Typically found within the Withholding Tax Booklet.

Rhode Island Department of Labor and Training (DLT):

• Form TX-17 (Quarterly Tax and Wage Report): Used to report wages and remit UI, JDF, and TDI taxes. Versions for 2025, 2024, and prior years are typically available on the DLT website.
• BAR (Business Application and Registration form): Used for initial registration for DLT employer tax accounts (often completed via the combined online registration service).
• TX-16-25 (Claim for Refund of Temporary Disability Insurance Tax): Used by employees who may have overpaid TDI due to multiple employers.

A comprehensive list of DLT Employer Tax Forms can usually be found on the DLT website.

Contact Information for Relevant State Agencies

Rhode Island Division of Taxation:

• General Inquiries / Withholding Tax Assistance:
  • Phone: (401) 574-8829
  • Email: Tax.Assist@tax.ri.gov
• Tax Portal Team (for electronic filing/payment assistance):
  • Phone: (401) 574-8484
  • Email: Tax.Portal@tax.ri.gov
• Forms Request:
  • Phone: (401) 574-8970
  • Email: Tax.Forms@tax.ri.gov
• Mailing Address: One Capitol Hill, Providence, RI 02908-5800
• Website: https://tax.ri.gov

Rhode Island Department of Labor and Training (Employer Tax Unit):

• General Phone: (401) 574-8700 (Follow prompts for specific units: Business Registration, Accounts & Control, Wage Record, Collections, Field Audit, Administration)
• Fax: (401) 574-8940
• Mailing Address: RI Department of Labor and Training Employer Tax Division 1511 Pontiac Avenue Cranston, RI 02920-0942
• Website (Employer Tax Unit): https://dlt.ri.gov/employers/employer-tax-unit