Rhode Island Gov. Dan McKee on Friday, June 12, 2026 signed a $15.2 billion state budget that includes the state's first millionaires tax. The law adds a 3% surcharge on income above $1 million, phased in one percentage point a year starting in 2027. With the state's current 5.99% top rate, that means an effective 8.99% rate on income above $1 million once the surcharge is fully in place. For Rhode Island residents expecting a business sale or other large one-time income in the next few years, the phase-in schedule matters as much as the final rate.
What changed
McKee had proposed a new 3% tax on top earners in January. According to NBC 10 WJAR, lawmakers kept the rate but spread it over three years instead of imposing it at once. The budget takes effect July 1, 2026.
The Institute on Taxation and Economic Policy, which supports the tax, says the surcharge applies to income over $1 million. It rises by one point a year beginning in 2027 and is expected to raise more than $150 million a year once fully phased in. The same budget includes:
- A new fully refundable child tax credit of $330 per child age 18 and under, phasing out above $88,500 of income for single filers and $110,640 for married couples.
- No more age requirement for the state's Social Security income exemption. The income limits stay at $107,000 for single filers and $133,750 for married couples for tax year 2025.
- Decoupling from several 2025 federal business provisions: immediate write-offs for research and development spending, the expanded exclusion for qualified small business stock, and the change to the business interest limitation. ITEP estimates that together they would have cost $22.6 million a year.
ITEP notes Rhode Island joins Washington, Maine and Hawaii in enacting new taxes on high-income households this year.
Who is affected
Rhode Island currently has three brackets, with the 5.99% top rate starting at $186,450 of taxable income in 2026, according to the Tax Foundation. The surcharge reaches only the portion of income above $1 million. That group includes high earners in finance and medicine, owners of pass-through businesses, and anyone with a large one-time gain from selling a company, real estate or concentrated stock.
The QSBS decoupling is a separate issue for founders and early investors. Gains that qualify for the expanded federal exclusion may not get the same treatment on a Rhode Island return.
The after-tax math
Under the schedule ITEP describes, the surcharge would be 1% in 2027, 2% in 2028 and 3% from 2029. Example: a Rhode Island business owner has $1 million of other income and expects a $4 million taxable gain from selling her company. All $4 million of the gain would sit above the $1 million threshold.
| Year of sale | Surcharge rate | Added state tax on $4 million |
|---|---|---|
| 2026 | 0% | $0 |
| 2027 | 1% | $40,000 |
| 2028 | 2% | $80,000 |
| 2029 and later | 3% | $120,000 |
These figures cover only the new surcharge, on top of tax at the regular 5.99% rate. They also assume the $1 million threshold applies to this household's total income as described. Details such as filing status, indexing and how specific kinds of income are treated will be set by the statute and state guidance.
Moves to discuss with your advisor
- Owners already negotiating a sale may want to model closing dates and installment-sale structures against the phase-in schedule with a CPA.
- Residents considering a move for other reasons often find the rules on residency, domicile and sourcing of gains matter more than the headline rate.
- Founders counting on the federal QSBS exclusion may want to check their expected Rhode Island tax separately.
What to watch
The Rhode Island Division of Taxation will need to issue forms and guidance before the 2027 tax year, including how the threshold applies to joint filers. Regional competition is also worth tracking. Massachusetts already has its own surtax on income over $1 million. How Rhode Island's version affects migration and revenue will shape whether lawmakers keep the full phase-in.
Sources
- First reported Rhode Island Gov. McKee signs more than $15 billion state budget — NBC 10 WJAR
- Rhode Island Budget Bets on Tax Fairness with Millionaires' Tax and New Child Tax Credit — Institute on Taxation and Economic Policy
- State Individual Income Tax Rates and Brackets, 2026 — Tax Foundation
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
