Model RI Governor Dan McKee's 2027 Tax Proposals (CTC, SS Exemption, New Top Bracket, Pension Exemption)

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Summary

Model four tax proposals from Rhode Island Governor Dan McKee's budget that take effect in 2027 and beyond. These proposals modify the personal income tax in significant ways:

1. New Rhode Island Child Tax Credit (§44-30-104) - Starting 2027
2. Social Security Exemption Expansion (§44-30-12(c)(8)) - Phased expansion 2027-2029
3. New Top Income Tax Bracket (§44-30-2.6(c)(3)(A)) - 8.99% top bracket starting 2027
4. Pension/Annuity Exemption Updates (§44-30-12(c)(9)) - Updated income thresholds

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Proposal 1: Rhode Island Child Tax Credit (§44-30-104)

Effective Date

Tax years beginning on or after January 1, 2027

Key Provisions

Credit Amount:

• $320 per claimed child (age ≤ 18 as of December 31)
• Only applies where the child exemption amount is zero under §44-30-2.6(c)(3)(C)(II)(2)

Phaseout Structure (STEPPED, not linear):

• Threshold: $261,000 AGI (modified per §44-30-12)
• Reduction: 20 percentage points per $7,450 (or fraction thereof) over threshold
• This means 100% phaseout at $261,000 + (5 × $7,450) = $298,250

Inflation Adjustment:

• Dollar amounts ($320 credit, $261,000 threshold, $7,450 increment) adjusted annually
• Base year: 2026
• CPI-U index (12-month average ending August 31)
• Rounded down to nearest $5

Related Provision - Child Exemption Zeroing:
For tax years 2027+, child dependents claimed for the CTC have their exemption amount set to zero (they get the credit instead of the exemption).

Implementation Notes

• We have an existing CTC reform framework at policyengine_us/reforms/states/ri/ctc/ri_ctc_reform.py
• Current phaseout uses start/end range structure - needs replacement with stepped phaseout approach
• Need to add parameters for:
  • stepped_phaseout_rate: 0.20 (20 percentage points)
  • stepped_phaseout_increment: $7,450
  • Remove or deprecate phaseout/start.yaml and phaseout/end.yaml
• Need to add logic to zero out child exemption when CTC is claimed

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Proposal 2: Social Security Exemption Expansion (§44-30-12(c)(8))

Phased Implementation

Current Law (through 2026):

• Age requirement: Must have attained full SS retirement age
• Income limits: $80,000 (single/HOH/MFS), $100,000 (joint/QW)

2027 (Tax Year):

• Age requirement: REMOVED (no longer need to be at full retirement age)
• Income limits: SAME ($80,000 single, $100,000 joint)

2028 (Tax Year):

• Age requirement: None
• Income limits: $165,200 (single/HOH/MFS), $206,550 (joint/QW)

2029+ (Tax Years):

• Age requirement: None
• Income limits: NONE (universal exemption regardless of income)

Inflation Adjustment

• Dollar amounts in (c)(8)(i)(A), (c)(8)(i)(B), and (c)(8)(ii) adjusted annually
• Base year: 2000
• Rounded to nearest $50 (or $25 for MFS)

Implementation Notes

• Existing variable: ri_social_security_modification and ri_social_security_modification_eligible
• Need to update parameters at gov.states.ri.tax.income.agi.subtractions.social_security.limit/
• Add parameter for age requirement toggle (FALSE starting 2027)
• Add new income threshold values for 2028
• Add "no limit" logic for 2029+

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Proposal 3: New Top Income Tax Bracket (§44-30-2.6(c)(3)(A))

Effective Date

Tax years beginning on or after January 1, 2027

Current Law (through 2026)

RI Taxable Income	Rate
$0 - $55,000	3.75%
$55,000 - $125,000	4.75%
$125,000+	5.99%

New Law (2027+)

RI Taxable Income	Rate
$0 - $55,000	3.75%
$55,000 - $125,000	4.75%
$125,000 - $648,398	5.99%
$648,398+	8.99%

Trust/Estate Brackets (2027+)

RI Taxable Income	Rate
$0 - $2,230	3.75%
$2,230 - $7,022	4.75%
$7,022 - $36,427	5.99%
$36,427+	8.99%

Implementation Notes

• Update gov.states.ri.tax.income/rate.yaml to add 4th bracket starting 2027
• The $648,398 threshold appears to be specific (derived from some calculation)
• May need separate trust/estate rate parameter if not already handled

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Proposal 4: Pension/Annuity Exemption Updates (§44-30-12(c)(9))

Key Changes for 2025+

Current Income Thresholds (using SS exemption thresholds):

• References §(c)(8)(i)(A) and §(c)(8)(i)(B) limits

New Income Thresholds (2025+):

• Single/HOH/MFS: $107,000
• Joint/QW: $133,750

Cap Amount:

• $50,000 maximum exemption (already in effect for 2025)

Inflation Adjustment Changes

• For 2026+: New base year of 2025 for thresholds in (c)(9)(ii)(A) and (c)(9)(ii)(B)
• Previous adjustment used base year 2000

Implementation Notes

• Existing variable: ri_retirement_income_subtraction
• Update income limit parameters starting 2025
• Ensure inflation adjustment base year changes from 2000 to 2025 for the new thresholds

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Technical Implementation Checklist

Child Tax Credit

• Add stepped phaseout parameters (rate per increment, increment amount)
• Modify ri_ctc_reform.py to use stepped phaseout calculation
• Add child exemption zeroing logic when CTC claimed
• Add inflation adjustment parameters (base year 2026, $5 rounding)
• Add tests for phaseout at various income levels

Social Security Exemption

• Add age requirement toggle parameter (FALSE starting 2027)
• Update income thresholds for 2028
• Add "no income limit" logic for 2029+
• Update ri_social_security_modification_eligible formula
• Add tests for each phase

Tax Brackets

• Add 4th bracket to rate.yaml starting 2027-01-01
• Verify trust/estate brackets handled (or add if needed)
• Add tests for new bracket

Pension Exemption

• Update income thresholds to $107,000/$133,750 for 2025+
• Update inflation adjustment base year to 2025
• Verify $50,000 cap already in place
• Add tests for new thresholds

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References

• Rhode Island General Laws § 44-30-104 (New CTC)
• Rhode Island General Laws § 44-30-12(c)(8) (SS Exemption)
• Rhode Island General Laws § 44-30-2.6(c)(3)(A) (Tax Rates)
• Rhode Island General Laws § 44-30-12(c)(9) (Pension Exemption)
• Governor McKee's FY2027 Budget Proposal (Pages 130-131, 145-146, 155-160)