Retirement Social Security

This State Just Made a Move to Eliminate Social Security Tax on Benefits

Some retirees could soon get to keep more of their monthly benefits.

By Maurie Backman , Edited by Laura Hohenstein

Updated March 31, 2026

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A big part of having a stress-free retirement is knowing how to plan for taxes. There are a number of senior income sources that are commonly subject to taxes, like traditional retirement plan withdrawals, certain types of pensions, and in some cases, Social Security benefits.

Whether Social Security benefits are taxed at the federal level depends on recipients' income. But there are also eight states that impose a tax on those benefits.

Now, Rhode Island Governor Dan McKee has introduced a three-year plan to phase out Rhode Island's tax on Social Security, and it could be a huge source of relief for retirees.

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Rhode Island's current Social Security tax rules

Although there are eight states that tax Social Security, it's common for states to offer exemptions for certain beneficiaries. Rhode Island offers its own exemption. Seniors do not have to pay taxes on their Social Security benefits if they've reached full retirement age, which is 67 for anyone born in 1960 or later, and their federal adjusted gross income (AGI) is below $107,000 for single tax-filers or $133,750 for married couples filing jointly.

Under McKee's proposal, the elimination of taxes on Social Security benefits will happen over three budget cycles. In the first year, relief will be available for early retirees who are taxed on benefits regardless of their AGI. Early claimants will instead be subject to the current limits of $107,000 for single tax-filers or $133,750 for joint filers.

The average income of a single early retiree in Rhode Island is $40,000. For joint filers, it's $75,000. Eliminating taxes on Social Security benefits for people earning similar incomes could provide a world of relief. In the first year of this new program alone, if it's approved, an estimated 9,200 early retirees will be fully exempt from state taxes on their Social Security benefits.

The Center for Retirement Research at Boston College found that in 2023, 26% of men and 27% of women claimed Social Security at 62. And a greater share of filers across both genders claimed Social Security prior to full retirement age than at or after it. So this change could be significant.

For the next phase of McKee's proposal, WPRI reports that in 2028, the state will raise its exemption threshold to $165,200 for single tax-filers and $206,550 for joint filers. As a result, another 11,600 residents will likely be exempt from having their benefits taxed if his plan goes through. By 2029, the exemption would then extend to higher earners, thereby fully eliminating state taxes on Social Security.

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The problem with eliminating taxes on Social Security

Eliminating taxes on Social Security could have a huge impact on retirees in Rhode Island. As it is, BestPlaces says the cost of living in Rhode Island is 12.5% higher than the national average, making it a difficult place to call home in retirement. Not having to pay tax on Social Security benefits could make it easier for retirees to manage their expenses and stretch their senior income.

Still, getting rid of taxes eliminates a huge source of revenue for Rhode Island. The state currently collects over $40 million annually by taxing benefits. If that revenue stream is lost, that puts the public at risk of having resources cut.

As it is, Rhode Island faces an estimated budget deficit of at least $101 million in the fiscal year that begins this July, according to Bloomberg. But McKee feels that the burden of Social Security taxes is not something older people in the state should have to bear. And as Maria E. Cimini, MSW, Director of Rhode Island's Office of Healthy Aging, said, "This change will help support greater financial stability and dignity for thousands of Rhode Islanders."

To recoup the lost revenue from Social Security taxes, McKee is proposing a fourth-tier tax of 8.99% for residents with incomes of over $1 million starting in fiscal 2027. That's projected to generate $67.1 million in the upcoming fiscal year, which is more than the $40 million the state collects via taxed Social Security.

Bottom line

Taxes on Social Security benefits have long been a sore spot among retirees at both the federal and state level. Many argue that this policy constitutes double taxation, since workers pay FICA tax on their wages to start with. Taxing the benefits those FICA taxes entitle them to in retirement feels like being hit a second time around.

Rhode Island's move to eliminate taxes on Social Security, meanwhile, seems to be part of a broader trend. Recently, West Virginia completed a phase-out of state taxes on Social Security. The state rolled out its plan in three phases, similar to what McKee is proposing.

Of course, McKee's proposal is just that — a proposal, and not law. But if his suggestion gains broad approval, seniors in Rhode Island may find that their retirement plans look rosier. Until then, though, Rhode Island retirees should understand the circumstances under which Social Security benefits are taxed, and plan accordingly.

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