Rhode Island LLC Taxes
LLCs in Rhode Island are taxed as pass-through entities by default. Rather than paying taxes at the entity level, LLCs pass profits and losses on to their members, who then pay taxes at the individual level. In Rhode Island, LLC members are subject to both federal and state personal income tax. Rhode Island LLCs are also required to pay an annual minimum fee, sales and use tax, and any applicable industry-related and local taxes.
In this article, we’ll cover:
How Are Rhode Island LLCs Taxed?
For federal income tax purposes, a single-member LLC (SMLLC) is classified as a sole proprietorship, and a multi-member LLC is classified as a partnership by default. LLC members pay individual income tax at the federal self-employment rate of 15.3% (12.4% medicare and 2.9% for social security). Filing under default status, you’ll submit the following forms:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi-member LLC—Form 1065
Rhode Island LLCs taxed as S-corp
Filing as an S-corp may benefit your Rhode Island LLC. S-corps are taxed as pass-through entities and aren’t subject to federal corporate income tax. Typically, LLC earnings are dispensed to members according to membership interest and these distributions are subject to the 15.3% federal self-employment. However, when your LLC is taxed as an S-corp, owners may be considered employees who must receive a reasonable salary. After expenses are paid, owners may also receive distributions. While S-corps owners must pay the federal self-employment tax on salary, they don’t need to pay this tax on distributions.
To change your election status to S-corp, you’ll need to file Form 2553. Your LLC will also need to meet IRS requirements for S-corps, such as having fewer than 100 members and being owned only by individuals (not other businesses). Consult an account to make sure that S-corp status is right for your LLC before making the change.
S-corp filers submit Form 1120-S to the IRS.
LLCs taxed as C-corp
A Rhode Island LLC can elect to be taxed as a C-corp, the default filing election for corporations. C-corps are subject to “double taxation”—C-corps pay the federal corporate income rate of 21%, and then owners pay taxes on their individual income. However, there are some advantages to filing as a C-corp. C-corps are eligible for more tax breaks and are more attractive to investors. Because filing under C-corp status is more complicated than filing under default status, seek advice from an accountant before making the switch.
C-corp filers submit Form 1120 to the IRS.
Rhode Island State Income Tax
If you’re filing under default status, you’ll pay personal income tax to the state of Rhode Island. Rhode Island levies a graduated income tax, which ranges from 3.75% to 5.99% based on your income bracket. Below are the individual income tax brackets and rates for 2022:
Rhode Island Individual Income Tax
$0 – $68,2000
$68,2000 – $155,050
$2,557.50 + 4.75%
$155,050 or more
$6,682.88 + 5.99% over $155,050
LLCs and S-Corps
Single- and multi-member LLCs filing under default status are also required to report their income to the state by filing a current version of Form RI-1065. If you file as an S-corp, you’ll use Form RI-1120S.
Although not subject to income tax at the entity level, both LLCs and S-corps must pay Rhode Island’s annual minimum tax, which is currently $400.
LLCs and S-corps must also withhold income tax from nonresident members at a rate of 5.99% for LLCs and 7% for S-corps and pay this tax to the state. (There are some exceptions to this rule, listed on the Division of Taxation’s Pass-Through Entities tax information page.)
Additionally, if you file as an S-corp and any portion of your income is taxable for federal purposes, you’ll need to report this income by attaching RI Schedule S and pay any state tax due at the 7% corporate tax rate.
LLCs filing as C-corps submit Form RI-1120C. C-corps must pay Rhode Island’s 7% corporate tax rate or the annual minimum tax of $400, whichever is greater.
Pass-Through Entity Tax Election
Pass-through entities such as LLCs and S-corps also have the ability to elect pass-through entity (PTE) filing status using Form RI-PTE. Instead of having members pay individual income tax, the entity itself pays taxes at a rate of 5.99%. After filing, members receive a state tax credit equal to their distributive share of the entity’s income on their individual returns. One advantage of the PTE election is that your LLC will not be subject to the nonresident income tax withholding requirements.
Electronic Filing Mandate
As of June 2022, businesses with an annual gross income of over $100,000 or with an annual tax liability of $5,000 or more must file online using the Division of Taxation’s taxpayer portal. While this does not apply to your individual Form RI-1040 filings, it does apply to all LLC Form RI-1065 filings, along with S-corp and C-corp filings. Find out more about the Electronic Filing Mandate through the Division of Taxation.
Sales and Use Tax
Any business engaged in the retail sale, rental, or lease of most goods and services must collect a 7% sales tax from customers and then pay this tax to the state. A complementing use tax of 7% is levied on the storage, use, or consumption of tangible personal property.
On top of the general sales tax, the state charges some additional sales taxes, as follows:
- Hotel, motel, or lodging house tax: 6% (13% total)
- Meals and beverage tax: 1% (8% total)
To collect sales and use tax, you’ll need to obtain a Sales and Use Tax Permit from the Division of Taxation. Sales and use tax is typically due the 20th day of each month. Register for your permit and pay sales and use tax online using the Division’s taxpayer portal.
Local Rhode Island Taxes
Municipalities in Rhode Island don’t impose additional local sales and use taxes. However, your LLC may still be on the hook for other local taxes, including real estate and motor vehicle tax. In Providence, you’ll need to pay Business Tangible Tax if you are buying or selling a business.
Other Taxes in Rhode Island
Your LLC may encounter other taxes levied by the state of Rhode Island.
Rhode Island State Employer Taxes
If you have employees, you’ll need to pay several employer-related taxes.
- Unemployment Insurance (UI) Tax—Rhode Island employers are required to pay an Employment Security tax on the first $24,600 paid to each employee ($26,100 for employers with an experience rating of 9.59 or higher). Employment Security tax rates are based on an employer’s experience rating, which takes into account the size of an employer’s taxable payroll and past experience with insured unemployment. Experience ratings are assigned after three years, and the Department of Labor and Training notifies employers of rate changes for the upcoming year in late December of the current year. The 2022 new employer rate is 0.98%.
- Job Development Fund Tax—Employers must pay 0.21% to support the Rhode Island Governor’s Workforce Board, which funds a variety of skills-improvement projects for workers. To prevent this program from increasing taxes for employers, every employer’s Employment Security tax rate is reduced by 0.21%.
- Workers’ Compensation—With limited exceptions, all employers with one or more employees are required by state law to provide workers’ compensation coverage. Rhode Island LLC members are not considered employees and are therefore exempt from this rule. In Rhode Island, you’ll need to purchase workers’ comp through a private insurer. The cost of workers’ comp varies depending on the level of risk your employees face on the job and your claims history.
The Division of Taxation levies a few industry-specific taxes, including:
- Adult Use Cannabis Tax
- Alcohol Import Tax
- Cigarette Tax
- Motor Fuel Tax
- Real Estate Conveyance Tax
- Tobacco Products Tax
For a full list of industry-related state business taxes, refer to the Division’s Sales & Excise Tax page.
Do Foreign LLCs in Rhode Island Need to Pay Rhode Island Taxes?
Rhode Island foreign LLCs—out-of-state LLCs that are registered to do business in Rhode Island—must pay all applicable business taxes, just like a regular Rhode Island LLC. This includes annual minimum tax, sales and use tax, and any industry-specific or local taxes. Nonresident LLCs members will also need to pay Rhode Island individual income tax on the portion of their income attributable to Rhode Island sources. For more on nonresident filing, see the Division of Taxation’s Individual Tax Filing Requirements.