Lawmaker pushes for R.I. income tax exemption on unemployment benefits

R.I. HOUSE DEPUTY Speaker Charlene Lima plans to submit legislation that would extend the federal tax break on the first $10,200 of unemployment benefits to Rhode Island income taxes. / PBN FILE PHOTO/NICOLE DOTZENROD

PROVIDENCE – One Rhode Island lawmaker is proposing to extend the federal tax break on the first $10,200 of unemployment benefits to Rhode Island income taxes.

House Deputy Speaker Charlene Lima, D-Cranston, is slated to officially file on Tuesday her bill exempting eligible residents from paying 2020 state income taxes on up to $10,200 of jobless benefits. Lima, who announced plans for her legislation on the House floor on March 30, said in a follow-up interview with Providence Business News that her goal is to offer another source of relief for financially struggling state residents.

The loss of state tax revenue – estimated at $30 million according to Lima, based on preliminary fiscal analysis – does not concern her. She called it a “drop in the bucket” compared to the more than $1 billion in aid the state is expected to receive through the American Rescue Plan Act of 2021.

Lima said her proposal has “enthusiastic” support from fellow legislators, with 60 signatures on her draft bill. However, the state has already said it does not intend to follow the federal income tax break for state taxes.

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The R.I. Department of Revenue in a news release on March 28 clarified that while state residents can deduct $10,200 in unemployment benefits from their federal income tax returns, they should still expect to pay state income taxes on all unemployment benefits for 2020.

Also complicating Lima’s proposal is the fact that many residents have already filed their state tax returns based on this existing policy. If the bill passes, Lima expected those who already filed state tax returns to be able to amend their filings for little or no cost.

“In the end, it would still be a net gain for that person,” she said.

Similar to federal unemployment tax exemption requirements, Lima’s bill would only apply to those who earned below $150,000.

A number of states have already adopted the federal tax break provisions for their own state income taxes, including neighboring Connecticut.

Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.

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