Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 20 - TAX CREDITS/DEDUCTIONS
Part 11 - Small Business Capital Development (280-RICR-20-20-11)
Section 280-RICR-20-20-11.6 - Wage Credit

Universal Citation: 280 RI Code of Rules 20 20 11.6

Current through September 18, 2024

A. General: A credit is available against an entrepreneur's personal income tax (R.I. Gen. Laws Chapter 44-30) for his/her share of wages paid by a qualifying business entity.

B. Calculation and Documentation: The wage credit is computed annually beginning with the first calendar year in which the business first qualified as a qualified business entity. The credit is first computed at 3% of the wages paid to employees for the calendar year in excess of $50,000 and excludes;

1. wages paid to owners;

2. wages paid more than 5 years after the start or purchase of the business; and

3. wages paid to employees who are not principally employed in Rhode Island and whose wages are not subject to Rhode Island withholding.

4. The credit is then divided among the entrepreneurs of the qualifying business entity by using the ratio of each entrepreneur's interest compared to the total interest held by all entrepreneurs.

C. EXAMPLE: A corporation has been certified as a qualifying business entity and, for its first year of certification, it paid $300,000 in wages to employees. It has been in business for 2 years. Part of the wages paid include $20,000 to owners and $22,000 paid to sales people working in Massachusetts and subject to Massachusetts withholding. The total credit is computed as follows:

Total Wages $300,000

Base Exclusion 50,000

Subtotal $250,000

Owners' Wages 20,000

Out-of-State Wages 22,000

Eligible Wages $208,000 @ 3%

Credit $ 6,240
1. The credit is then divided among the entrepreneurs according to their interests in A Corporation. If there were two entrepreneurs in A Corporation with equal interests, each would be eligible for a $3,120 credit against his/her Rhode Island personal income tax. Documentation showing the composition and calculation of the total credit by the qualifying business entity and of each of the entrepreneur's shares shall be prepared by the qualifying business entity and shall be attached to the personal income tax return of each entrepreneur claiming a share.

D. Restrictions and Carryovers

1. The wage credit cannot reduce the entrepreneur's personal income tax to less than $0 and is not refundable.

2. Amounts of wage credit available to the entrepreneur may not be applied against his/her tax liability until all other credits available to the entrepreneur have been applied.

3. Amounts of unused wage credit may not be carried over to the following year.

4. The wage credit ceases in the tax year following the year in which the qualifying business entity's average annual gross revenue exceeds $1,500,000.

Disclaimer: These regulations may not be the most recent version. Rhode Island may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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