Corvese bill would end double-taxation on state tax refunds

Corvese bill would end double-taxation on state tax refunds

PROVIDENCE – Rep. Arthur Corvese says he wants to end double-taxation of income tax refunds.

Corvese, of District 55, North Providence, has introduced legislation that would exclude income tax refunds from prior tax years from being considered part of a taxpayer’s taxable income for state purposes.

“Tax refunds are granted because a person has paid all the income tax they owe – and more – on their income from a given year. They aren’t new income that hasn’t yet been taxed,” he said in a statement. “Counting them as if they were means taxpayers are being taxed by the state twice on that income, and that’s completely unfair.”

The legislation would allow Rhode Islanders to deduct any tax refunds from their federal adjusted gross income for the purpose of determining their state income tax.

Rhode Island used to allow this deduction, until it eliminated itemized deductions in favor of a standard deduction in a package of tax reforms that became effective in the 2011 tax year.

A special legislative commission explored the situation in 2014, during which one of the architects who helped develop the new system testified that the “double-taxation” of refunds was an unintended consequence that should be fixed. Though legislation to do so was proposed that year, it was not enacted.

“Your tax refund is simply the money that you allowed to be withheld from your paycheck to cover your taxes, minus the taxes you ended up owing. The tax you actually pay shouldn’t be affected by whether you withhold just enough or far too much, triggering a substantial refund,” said Corvese.

“But under our current system, the more you lend to the government through extra withholding, the more will be subject to double-taxation the following year. We need to address this unjust situation by allowing people to deduct their previous year’s refund from their AGI (adjusted gross income) when determining their state income.”

The bill, introduced Jan. 3 and assigned to the House Finance Committee, is cosponsored by Rep. Thomas Winfield, of District 53, Smithfield, Glocester; Rep. Stephen Ucci, of District 42, Johnston, Cranston; Rep. William O’Brien, of District 54, North Providence; and Rep. John G. Edwards, of District 70, Tiverton, Portsmouth.