For many retirees over 65, tax break promise was too good to be true

Actual tax benefits will be limited but many seniors will benefit

By Will Collette

For a while, it looked like Rhode Island retirees over 65 were going to get a big break on their state income taxes when the General Assembly announced it was folding the language from two bills, one (2015-H 5000) by Rep. Bob Craven (D-North Kingstown) and the other (2015-S 0029) by Sen. William A. Walaska (D-Warwick) into the state budget which was just signed by Governor Raimondo. Craven is also one of Charlestown’s municipal lawyers.

Their news release included links to both bills leading to some hope that Bob Craven’s version, which would have exempted nearly all forms of retirement income would be written into the budget. Click here for details on that earlier news announcement.

But, as I warned, we'd have to see the actual language in the budget to see how far the benefits would extend. Now we have the actual state budget.

Unfortunately, the very generous version in Rep. Craven’s bill that would have allowed you to exclude other forms of retirement, such as a government or private pension and earnings from retirement accounts to determine whether you qualify did not make the final cut.

The final result is that a smaller number of senior citizens will qualify. 

Generally, if the only income a person has is Social Security, that amount is too low to be subject to federal or state income tax. If a single person on Social Security has a federal adjusted gross income of $25,000 or $32,000 for a couple, Social Security benefits are not taxed under current state and federal law.

The people this new legislation will benefit are elderly retirees with adjusted gross incomes above $25,000 if single or $32,000 for couples and below $80,000 for singles and $100,000 for couples.

It's those middle-class seniors who get this new tax break. And good for them, I say.

Here’s the actual language relating to Social Security on pages 269-70 that appears in the budget signed into law by Gov. Gina Raimondo:

(8) Modification for taxable Social Security income. (i) For tax years beginning on or after January 1, 2016: (A) For a person who has attained the age used for calculating full or unreduced social security retirement benefits who files a return as an unmarried individual, head of household or married filing separate whose federal adjusted gross income for such taxable year is less than eighty thousand dollars ($80,000); or
(B) A married individual filing jointly or individual filing qualifying widow(er) who has attained the age used for calculating full or unreduced social security retirement benefits whose federal adjusted gross income for such taxable year is less than one hundred thousand dollars ($100,000), an amount equal to the social security benefits includable in federal adjusted gross income.

(ii) Adjustment for inflation. The dollar amount contained in subparagraphs 44-30-12(c)(8)(i)(A) and 44-30-12(c)(8)(i)(B) shall be increased annually by an amount equal to: (A) Such dollar amount contained in subparagraphs 44-30-12(c)(8)(i)(A) and 44-30-12(c)(8)(i)(B) adjusted for inflation using a base tax year of 2000, multiplied by;
(B) The cost-of-living adjustment with a base year of 2000.

(iii) For the purposes of this section the cost-of-living adjustment for any calendar year is the percentage (if any) by which the consumer price index for the preceding calendar year exceeds the consumer price index for the base year. The consumer price index for any calendar year is the average of the consumer price index as of the close of the twelve (12) month period ending on August 31, of such calendar year.

Art11 RELATING TO REVENUES
(iv) For the purpose of this section the term "consumer price index" means the last consumer price index for all urban consumers published by the department of labor. For the purpose of this section the revision of the consumer price index which is most consistent with the consumer price index for calendar year 1986 shall be used.

(v) If any increase determined under this section is not a multiple of fifty dollars ($50.00), such increase shall be rounded to the next lower multiple of fifty dollars ($50.00). In the case of a married individual filing separate return, if any increase determined under this section is not a multiple of twenty-five dollars ($25.00), such increase shall be rounded to the next lower multiple of twenty-five dollars ($25.00).

In a nutshell, if you are a Rhode Islander 65 or older on Social Security, your Social Security and only your Social Security is exempt from state income tax if your federal adjusted gross income is $80,000 for singles and $100,000 for couples.

I wanted to make absolutely certain that the new and final language says what I think it says, so I asked Bob Craven, as the main sponsor of the legislation, to clarify. In an e-mail, this is what Bob told me:

“You are reading the budget correctly. The state income tax relief for retirement income is limited to Social Security only.”

While it would have been nice to get this tax break, Cathy and I felt we really don’t need it, plus the state has other, more pressing needs than pandering to old geezers like us.

It was odd for Filippi to even bring up Social Security since, as a
Libertarian and Tenther, he holds Social Security to be unconstitutional

Incidentally, one of Blake “Flip” Filippi’s (I-Oath Keepers) first promises in his campaign that defeated Rep. Donna Walsh (D) was his pledge to introduce a bill in the first week he was in office to eliminate state income tax on Social Security.

Flipper never got around to introducing a bill. Later, he did sign on as a third-cosponsor to a couple of “me-to” bills by his Republican colleagues Rep. Patricia Morgan (House Bill No. 5056) and Rep. Doreen Costa (House Bill No. 5057). Those two bills were filed after Craven filed his bill and seemed to have no other purpose than to get a little media coverage.