- Massachusetts taxes wages at a flat rate, 5.3 percent. Rhode Island uses brackets and charges different percentages based on income levels. In 2010, Rhode Island's brackets ranged from 3.75 to 9.9 percent. In June, it adopted reforms that cut the highest rate and reduced the number of brackets from five to three, ranging from 3.75 to 5.99 percent, effective Jan. 1, 2011. Rhode Island's old top rate was one of the highest in the country.
- Rhode Island law requires employers to withhold state income taxes from wages paid for work performed in the state. If your workplace is in Rhode Island, your employer won't withhold Massachusetts income taxes from your paychecks. Don't assume that means you don't owe any, or that you can wait to figure it out when you file your tax return. To avoid penalties, Massachusetts taxpayers must file quarterly estimated tax payments if they'll owe more than $400 in taxes after credits and withholding.
- Residents of Massachusetts must file income tax returns if their gross income is more than $8,000, even if they don't owe any taxes. Massachusetts gross income includes income earned elsewhere. You need to file income tax returns in both states to claim a credit from Massachusetts for state income taxes paid to Rhode Island. In Rhode Island, you should file a nonresident tax return. In Massachusetts, file a resident tax return.
- Massachusetts residents must fill out a worksheet to claim a credit for income taxes they paid to Rhode Island. The worksheet compares the Massachusetts tax on the amount of income you earned in Rhode Island to the tax you actually paid to Rhode Island. The credit you'll receive is the smaller of those two numbers. In other words, if you paid more to Rhode Island than you would have paid to Massachusetts, you won't get a credit for the additional Rhode Island tax. If you paid less to Rhode Island than you would have paid in Massachusetts, you may owe additional tax on that income to Massachusetts.
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