Rhode Island has officially decoupled from several provisions of H.R. 1 (One Big Beautiful Bill Act), the federal tax law enacted July 4, 2025. The Rhode Island Division of Taxation’s Advisory 2025‑20 explains how this affects 2025 filings and payroll practices.
Impact on Payroll and Withholding
- Tips and Overtime Still Taxable in RI: Federal law now excludes tips and overtime pay from taxable income, but Rhode Island does not follow this rule. These amounts remain fully taxable for state purposes.
- Action: Continue withholding Rhode Island income tax on all wages, including tips and overtime.
- No Changes to RI Withholding Tables or Forms: Employers should keep using current Rhode Island withholding tables and forms.
- Federal Withholding Unchanged: The IRS has not updated federal withholding or reporting forms (e.g., W‑2, 941) for 2025. Employers should maintain current federal processes.
- Other Federal Deductions Ignored by RI: Items like car loan interest deductions under H.R. 1 remain taxable in Rhode Island and do not affect payroll withholding.
Other Key Points
- Pass‑Through Entity Tax (PTET): SALT cap changes under H.R. 1 do not affect Rhode Island’s PTET rules. This is a return-level issue, not payroll-related.
- New RI Schedules for Returns: Rhode Island created new schedules (RI Schedule HR1‑Individual, HR1‑Entity, and 174A) to reconcile federal/RI differences. These apply to tax returns, not payroll filings.
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