Allows a modification to federal adjusted gross income for personal income tax for qualified tips and overtime income consistent with the federal tax treatment.

Rhode Island Senate Bill: Tax Exemption for Tips and Overtime Pay

This bill would allow Rhode Island workers to exclude tips and overtime pay from their state income taxes, similar to how those earnings would be treated under federal tax law. In other words, if the federal government decides not to tax certain tip income or overtime wages, Rhode Island would follow suit and also exempt that same income from state taxes. Workers would be able to subtract these earnings when calculating how much of their income is subject to Rhode Island's personal income tax.

The people most directly affected by this bill are workers in industries where tips and overtime are common — such as restaurant servers, bartenders, hotel staff, hair stylists, and others in the service industry, as well as hourly workers in manufacturing, healthcare, retail, and other fields who regularly work overtime hours. For these workers, the change could mean a smaller state tax bill and more take-home pay each year.

It's important to note that this bill is tied to federal tax treatment, meaning it would only apply if and when the federal government enacts its own exemption for tips and overtime income. The bill has been introduced in the Rhode Island Senate and referred to the Senate Finance Committee, where lawmakers will review its potential impact on state tax revenues and decide whether to move it forward.