How Arkansas income tax works: its own return, $29 credits, 3.7%

Arkansas does its own arithmetic. Form AR1000F does not start from federal adjusted gross income or federal taxable income; it rebuilds your income line by line from your W-2s, 1099s and federal schedules, leaves out what Arkansas does not tax, subtracts its own adjustments and its own deduction, and runs the result through its own brackets. The top rate is 3.7% for 2026, cut from 3.9% by Act 1 of the May 2026 special session and made retroactive to January 1, and it begins at about $26,400 of net taxable income, so nearly every household with a full-time wage earner is a top-bracket household. In place of personal exemptions there is a $29 tax credit for each person on the return. The standard deduction is $2,470 single and $4,940 joint (2025 figures; the Department’s 2026 indexed figures are to come), but you may itemize on Form AR3 even if you took the federal standard deduction, under rules that look like the federal Schedule A of 2017. Half of a long-term capital gain is excluded. Social Security and military retirement are never taxed; other retirement income gets a $6,000 exclusion per person. And because none of the federal below-the-line deductions enacted in 2025, for tips, overtime, seniors and car-loan interest, has a line on the Arkansas return, none of them reduces Arkansas tax.

Who files

A full-year resident files Form AR1000F and reports all income, wherever earned, taking a credit on Form AR1000TC for tax paid to another state on the same income. Part-year residents and nonresidents with any Arkansas income file Form AR1000NR, with no minimum; it computes tax on everything, then prorates it by the Arkansas share, as explained in Moving to Arkansas. A full-year resident must file once gross income passes these 2025 thresholds (2026 to come):

From the 2025 AR1000F instructions. Below the threshold it is still worth filing to recover withholding. Anyone who had Arkansas tax withheld from a pension or a part-time job and owes nothing should file for the refund.

Arkansas has six filing statuses, and the fourth is the one people have not heard of: married filing separately on the same return. Both spouses sign one AR1000F, each spouse’s income goes in its own column, and each column runs through the brackets on its own. Because Arkansas does not double the brackets for a joint return, status 4 usually produces less tax than status 2 when both spouses have income. Software tries both. The cost is small: a $1,500 rather than $3,000 capital loss limit per spouse, and if one spouse itemizes on AR3 both must.

Where it starts: Arkansas gross income

Lines 8 through 22 of the AR1000F list the kinds of income, and you enter each from its federal source document: wages from the W-2, interest and dividends from the 1099s, business, rental and farm income from the federal schedules. Three things happen at this stage that have no federal counterpart.

Some income never gets in. Social Security, Railroad Retirement, VA benefits and workers’ compensation are exempt at any income and any age. Military retirement pay has been exempt since 2018 and active-duty military pay since 2014; both are entered on their own lines and then left out of the total. A resident of Texarkana, Arkansas owes no Arkansas tax on income earned while living inside the city, through the border-city exemption on Form AR1000ADJ and the employer’s Form AR-TX. Unemployment benefits, on the other hand, are taxable; the exemption that existed for 2020 and 2021 is gone.

Retirement income gets a $6,000 haircut. The first $6,000 of pension, 401(k), 403(b) or other employer-plan income is excluded, with no age test, and so is the first $6,000 of traditional IRA distributions taken at 59½ or later or on death or disability. The two together cannot exceed $6,000 per taxpayer, so a couple with two pensions excludes $12,000 and a single retiree with a pension and an IRA excludes $6,000, not $12,000. The taxable remainder goes on line 18. Government pensions get the same $6,000 as private ones. The details, including what a Roth conversion costs here, are in Arkansas for retirees.

Half of long-term capital gains disappear. Schedule AR1000D takes the net long-term gain from federal Schedule D, adjusts it for any difference in Arkansas depreciation, and multiplies the result by 50%. Net long-term gain above $10 million is entirely exempt. Short-term gains are taxed in full. A capital loss is limited to $3,000 a year ($1,500 for status 4 or 5), and gain on a principal residence is excluded up to $250,000, or $500,000 for a married couple on the same return, on the federal two-of-five-years test. The effective top rate on a long-term gain is therefore 1.85%.

The total of the income lines is total income on line 23. Adjustments on line 24 come off it to reach Arkansas AGI on line 25.

The adjustments: Form AR1000ADJ

The adjustments schedule is where most of the federal above-the-line deductions reappear, along with several that exist only in Arkansas.

Two federal deductions have no Arkansas line: the 20% qualified business income deduction and the educator expense deduction, which Arkansas replaces with its own larger one. The federal deductions for tips, overtime, seniors and car-loan interest are not adjustments either; they come off federal taxable income, a number Arkansas never uses.

The deduction: $2,470 standard, or Form AR3

From Arkansas AGI you subtract the larger of the standard deduction or your itemized deductions on Form AR3. The standard deduction is $2,470 for single, head of household, surviving spouse and each separately filing spouse, and $4,940 on a joint return (2025 figures; the Department’s 2026 withholding formula still uses $2,470, and the indexed 2026 figures are to come). Dependents who file get no standard deduction.

Because the standard deduction is small, Form AR3 matters to far more Arkansans than Schedule A matters to Americans. The choice is independent of the federal return: you can take the federal standard deduction and itemize for Arkansas. And AR3 is, in substance, the Schedule A that existed before 2018. Medical expenses count above 10% of Arkansas AGI. Real estate and personal property taxes are deductible with no dollar cap; Arkansas income tax and sales tax are not. Home mortgage interest, points and investment interest are deductible. Charitable gifts are limited to 60% of AGI with a five-year carryover. Casualty losses above 10% of AGI, the tuition deduction on Form AR1075, employee business expenses above a 2%-of-AGI floor (Form AR2106) and gambling losses up to winnings all have lines. A homeowner with $3,000 of property tax and $9,000 of mortgage interest clears $4,940 easily and should itemize for Arkansas whether or not it made sense federally.

Arkansas AGI minus the deduction is net taxable income on line 28, and that is what the tax is computed on.

The rates

Arkansas publishes a bracket table that works as a “minus adjustment” schedule: multiply net taxable income by the rate for your bracket, then subtract a fixed amount that gives you credit for the lower rates on the first dollars. The brackets are indexed each year and are the same for every filing status.

Rates and adjustments from the Department’s 2026 withholding formula, which applies the 3.7% rate to the 2025 indexed thresholds. The 2026 indexed thresholds are to come with the 2026 forms. On the 2025 return the top rate was 3.9% and the top adjustment $419.96.

So a single filer with $50,000 of net taxable income owes $50,000 × 3.7% − $367.16, or $1,483 before credits. The $367.16 is the entire value of the four lower brackets; above $26,400 every additional dollar is taxed at 3.7%, and above $97,600 the adjustment shrinks to $79.90, so a high earner pays very nearly a flat 3.7%. Interest, dividends, rent, short-term gains and the taxable half of long-term gains are taxed at the same rates. No Arkansas city, county or school district levies an income tax.

The Low Income Tax Table

Filers with modest income have a second option. The Low Income Tax Table builds the standard deduction into the table itself and reaches zero tax at the filing threshold, so a single filer with $14,643 or less owes nothing and a joint couple with two children owes nothing up to $29,722 (2025 table). It can be used by single filers up to $17,500 of income, heads of household and surviving spouses up to $25,300 (0–1 dependents) or $29,000 (2 or more), and joint filers up to $29,000 (0–1 dependents) or $36,100 (2 or more). If you use it, you enter zero on the standard deduction line. Using the $6,000 retirement exclusion or the active-duty pay exclusion generally disqualifies you from the table, but you may give up the exclusion to use it if that comes out better. Software should compare the two; if you file by hand, look at both.

The credits

Arkansas gives a $29 credit per person instead of an exemption. That is the single most-asked-about line on the return, because people look for the dependent exemption and cannot find it. The credits sit on line 7, and the rest are on Form AR1000TC.

There is no Arkansas earned income credit, no child tax credit, no renter credit and no property tax credit on the income tax return. Property tax relief runs through the county assessor; see Arkansas for retirees. The family credits are in Credits and breaks for Arkansas families.

Withholding and estimated payments

Employers withhold from Form AR4EC, where you claim exemptions worth $29 of credit each and the employer runs annualized pay through the same brackets after the $2,470 standard deduction. The formula gives each job the 0% bracket and the standard deduction, so a household with two or three jobs is routinely underwithheld; claiming zero exemptions on the second job usually fixes it. Pension payers will withhold Arkansas tax on request.

Estimated payments on Form AR1000ES, or through the Arkansas Taxpayer Access Point (ATAP), are due April 15, June 15, September 15 and January 15. They are required when you expect to owe $1,000 or more after withholding and credits, unless withholding covers at least 90% of this year’s tax or 100% of last year’s. The underpayment penalty is 10%, figured on Form AR2210. Self-employed people, landlords and anyone with a large capital gain are the usual people caught out, since nobody withholds on that income.

How to file

The return is due April 15, 2027. A federal extension carries over automatically and runs the Arkansas deadline to November 15, 2027; check the extension box on the return and do not attach the 4868. Without a federal extension, file Form AR1055-IT by April 15. Either way the extension is to file, not to pay. Refund status is at ATAP, and the Department has 90 days from the due date or the filing date to pay a refund without interest. Dates, forms and contacts are in Arkansas calendar and forms.

What trips people up

• Expecting the federal tips, overtime or senior deduction to lower Arkansas tax. None has an Arkansas line.
• Taking the federal standard deduction and assuming that settles it. Form AR3 is a separate decision, and with a $2,470 standard deduction most homeowners should itemize for Arkansas.
• Filing jointly without checking status 4.
• Claiming the $6,000 exclusion on an IRA withdrawal taken before 59½, or claiming $12,000 for one person with a pension and an IRA.
• Forgetting Schedule AR1000D, and paying tax on the whole long-term gain.
• Filing late with net taxable income under $27,600: the $60 credit requires a timely return.
• Bonus depreciation carried in from a federal Schedule C, E or F with no Form AR-OI adjustment. Arkansas allows none.