Arkansas · what’s new
What’s new in Arkansas for 2026: a 3.7% top rate, and none of the federal deductions
The one change that reaches every working Arkansan’s 2026 return is a rate cut passed in May and backdated to January 1. The bigger story is what did not change: Arkansas adopted nothing from the July 2025 federal tax law, so tips, overtime, the senior deduction and car-loan interest are all still taxed here. This article walks through both, plus the grocery tax, the homestead credit, and what to expect when the 2026 return looks different from the 2025 one.
By Charles Trautman, EA, editor
Need to Know Tax · written from Arkansas Department of Finance and Administration (DFA), Income Tax Administration sources, November 3, 2026; updated November 12, 2026 after the election · not yet reviewed by an Arkansas practitioner
The bottom line
- The top rate is 3.7% for all of 2026, down from 3.9%; the cut was signed in May and reaches back to January 1.
- Arkansas did not adopt any of the federal deductions for tips, overtime, seniors or car-loan interest.
- The state sales tax on groceries ended January 1, 2026. The homestead credit rises to $675 on the bill paid in 2027.
- Nothing on the November 3 ballot changed a tax.
Arkansas cut its top individual income tax rate from 3.9% to 3.7% on May 6, 2026, retroactive to January 1, so every 2026 return will be figured at the lower rate even though paychecks were withheld at 3.9% for the first five months of the year. The top rate starts at only $26,400 of net taxable income, which means the cut reaches about 1.1 million filers, nearly everyone with a full-time job. Nothing else on the return moved. Arkansas builds its return from its own income lines, not from federal taxable income, and the legislature declined to adopt any of the new federal deductions. If you owe no federal tax on your tips or overtime this year, you still owe Arkansas on them.
That second point is the one worth reading twice. Arkansas adopts federal code sections one at a time, as of fixed dates, and nothing happens until the legislature acts. The 2025 regular session, the April 2026 fiscal session and the May 2026 special session all came and went without adopting a single provision of the July 2025 federal law. The special session cut rates and nothing more.
The rate cut: Act 1 of 2026
The legislature met for three days beginning May 4, 2026 at the governor’s request and passed two identical bills, House Bill 1001 and Senate Bill 1, which became Act 1 and Act 2 of the First Extraordinary Session. The governor signed them May 6. The individual change is a single number: the rate on net taxable income above the top threshold falls from 3.9% to 3.7%, for tax years beginning on or after January 1, 2026. The lower brackets, 0%, 2%, 3% and 3.4%, are untouched. The same bills cut the top corporate rate from 4.3% to 4.1%, but not until 2027, and the rate that electing pass-through entities pay on their owners’ behalf tracks the individual top rate, so it is 3.7% for 2026 as well.
The Department of Finance and Administration put the cost at $163.5 million a year for individuals. Sponsors said the cut reaches roughly 1.1 million taxpayers with net taxable income of $26,400 and up. It is the fifth cut to the top rate since 2023; the rate was 7% as recently as 2013.
| Net taxable income | 2025 rate | 2026 rate |
|---|---|---|
| $0 to $5,599 | 0% | 0% |
| $5,600 to $11,199 | 2.0% | 2.0% |
| $11,200 to $15,999 | 3.0% | 3.0% |
| $16,000 to $26,399 | 3.4% | 3.4% |
| $26,400 and over | 3.9% | 3.7% |
The thresholds are the 2025 indexed figures, which DFA’s 2026 withholding formula still uses. DFA publishes the indexed 2026 figures with the 2026 forms, usually in December or January; they had not appeared as of early November 2026. The brackets are the same for every filing status. Arkansas does not double them for joint filers, which is why it allows spouses to file “married filing separately on the same return” and run the table on their own incomes.
Arkansas applies the rates as a “minus adjustment” schedule: tax is income times the top rate that applies, less a fixed amount that stands in for the lower brackets, and Act 1 moved the band over which that adjustment phases down to $94,701–$97,600. For a reader the arithmetic is simpler: the cut saves 0.2% of whatever net taxable income you have above $26,400.
Worked example: what 3.7% instead of 3.9% is worth
A single filer with $50,000 of net taxable income (line 28 of Form AR1000F, after the standard deduction), and a married couple whose combined net taxable income is $150,000. Both use the 2025 thresholds, since the 2026 ones are to come.
| Single, $50,000 | Couple, $150,000 | |
|---|---|---|
| Tax on the first $26,400 (0%, 2%, 3%, 3.4% steps) | $610 | $610 |
| Income above $26,400 | $23,600 | $123,600 |
| Tax on that income at 3.9% (2025 law) | $920 | $4,820 |
| Tax on that income at 3.7% (2026 law) | $873 | $4,573 |
| Saving from Act 1, before personal credits | $47 | $247 |
Rounded to the dollar; DFA’s tax table and the minus-adjustment rounding will differ by a few dollars, and the couple’s figure ignores the phase-down band between $94,701 and $97,600. The point is the shape: a $50,000 earner saves about $47, a couple at $150,000 about $247. Withholding at 3.9% ran through late May, so most wage earners will see the saving as a slightly larger refund rather than a bigger paycheck.
Withholding caught up in June
DFA issued a 2026 withholding formula in January at 3.9%, then reissued it on May 29, 2026 with the top rate and the supplemental rate on bonuses both at 3.7%. The $2,470 standard deduction and $29 per-exemption credit built into the formula did not change. If your employer never adjusted, nothing is lost: the return reconciles it and the excess comes back as refund. Form AR4EC is the Arkansas withholding certificate; see W-4 and withholding for the federal side.
What Arkansas did not adopt from the 2025 federal law
This is where the 2026 Arkansas return parts company with the federal one, and where software has to be watched. Form AR1000F lists wages, interest, dividends, business income, capital gains and pensions on Arkansas’s own lines, subtracts Arkansas adjustments on Form AR1000ADJ, then the Arkansas standard deduction or Form AR3 itemized deductions. Federal AGI and federal taxable income appear nowhere in that chain. A deduction Congress put below the federal AGI line has no path onto the Arkansas return unless the legislature writes one, and in 2026 it wrote none.
| Federal change | Federal return | Arkansas return |
|---|---|---|
| Deduction for qualified tips (IRC 224) | Up to $25,000 deducted | Not adopted. Tips fully taxed at Arkansas rates. |
| Deduction for overtime premium (IRC 225) | Up to $12,500 / $25,000 joint deducted | Not adopted. Overtime fully taxed. |
| $6,000 senior deduction, age 65+ | $6,000 deducted, 2025–2028 | Does not exist. Arkansas’s age breaks are its own: an extra $29 credit at 65, the $6,000 retirement exclusion, and untaxed Social Security. See Arkansas for retirees. |
| Car-loan interest deduction | Up to $10,000 deducted | Not adopted. Form AR3 interest lines are mortgage, points and investment interest only. |
| SALT cap raised to $40,000 and phased out at high income | Schedule A | Not applicable. Form AR3 follows Arkansas law and never had a SALT cap; real estate and personal property taxes are deductible without a stated dollar limit. Arkansas income tax itself is not deductible on AR3. |
| 100% bonus depreciation restored (IRC 168(k)) | Full write-off in year one | Not adopted. Arkansas has never allowed bonus depreciation; the difference is tracked on Form AR-OI year after year. HB1501 of 2025, which would have adopted it, died in committee. |
| Section 179 limit raised to $2.5 million | Expense up to $2.5 million | Arkansas adopts Section 179 as of January 1, 2022, so the lower 2022 limit applies (verify DFA’s figure). |
| Dependent-care FSA limit raised to $7,500 (IRC 129) | $7,500 excluded | Arkansas adopts IRC 129 as of January 1, 2005: $5,000 excluded, the excess is Arkansas wages. |
| Larger child and dependent care credit (IRC 21) | Up to 50% of expenses | Arkansas’s 20% credit on Form AR2441 is computed under IRC 21 as of January 2, 2013, so it does not grow. See Credits and breaks for Arkansas families. |
| Employer student-loan payments excluded permanently (IRC 127) | Up to $5,250 excluded | Arkansas adopts IRC 127 as of January 1, 2017; the payments are Arkansas wages. |
| Trump account contributions excluded (IRC 128, 139J) | Excluded | Not adopted as of September 2026; employer contributions are Arkansas income. |
The Arkansas treatment follows EY’s September 23, 2026 reading of Ark. Code 26-51-404 and DFA’s published adoption dates. DFA had issued no guidance of its own on the 2025 federal law as of early November 2026, which is itself telling: from the Department’s side there is nothing to announce, because nothing changed.
Two of these matter to ordinary households. Tips and overtime: Arkansas gross income on line 8 of the AR1000F is the full Box 1 wage, tips and overtime included, and a server whose federal withholding dropped should not expect the Arkansas number to follow. The senior deduction: software that builds a state return from federal taxable income will quietly carry the $6,000 out of Arkansas income, and a return that does so is wrong by about $222 of tax at 3.7%.
Behind the scenes: static conformity
Ark. Code 26-51-404 and the sections around it adopt pieces of the Internal Revenue Code by number and by date: Section 129 as of January 1, 2005, Section 127 as of January 1, 2017, Sections 167 and 168 as of January 1, 2019 with 168(k) carved out, Section 179 as of January 1, 2022. When Congress rewrites a section, Arkansas keeps the old version until the General Assembly votes to move the date. That is why the 2025 federal law arrived as a non-event, and why older oddities survive: employee business expenses and moving costs are still deductible on Forms AR2106 and AR3903, and alimony is still deductible by the payer regardless of the divorce date. Arkansas did not decline the 2017 federal changes any more than the 2025 ones. It simply never adopted them.
Other changes that reach a 2026 household
The state grocery tax is gone. Act 1008 of 2025, the Grocery Tax Relief Act, eliminated the state sales tax on groceries, already down to 0.125%, effective January 1, 2026. City and county grocery taxes continue, and they range from nothing to over 6%, so the register receipt depends on the store’s address. The general state sales tax stays at 6.5% plus local.
The homestead credit rises to $675. Act 174 of 2026 (House Bill 1103, signed May 1, 2026 in the fiscal session) raises the Amendment 79 homestead property tax credit from $600 to $675 for assessment years beginning on or after January 1, 2026. The $600 figure (Act 330 of 2025) is on the bill homeowners pay in 2026; the $675 appears on the bill paid in 2027. The credit is applied by the county collector to a registered principal residence, not claimed on the income tax return.
Teacher classroom expenses, $1,000. Act 878 of 2025 doubled the deduction for a teacher’s unreimbursed classroom supplies to $1,000 per teacher, $2,000 on a joint return where both teach, beginning with tax year 2025. It is an adjustment on Form AR1000ADJ via Form AR1000CE, so it helps whether or not the teacher itemizes.
Smaller 2025 acts carried into 2026. Rollovers from a 529 plan to a Roth IRA are exempt (Act 802 of 2025, retroactive to 2024); name, image and likeness pay to a student-athlete is exempt (Act 839 of 2025); multistate service businesses move to market-based sourcing from 2026 (Act 719 of 2025), which does not touch a wage earner.
The 2022 relief credit is long gone. The $150 per taxpayer “inflationary relief” credit was for 2022 only, though older summaries still list it. What remains is the Additional Tax Credit for Qualified Individuals: up to $60 per taxpayer for net taxable income of $26,500 or less, gone at $27,600 (verify; 2025 range), claimed on Form AR1000TC line 6 and only on a return filed on time.
No ballot measure. Four statewide questions were on the November 3, 2026 ballot: a citizens-only voting amendment, a right-to-bear-arms amendment, an economic development districts amendment, and a $500 million water and waste-disposal bond issue. None of them changes the income, sales or property tax.
The 2026 return next to the 2025 one
- Same forms, AR1000F and AR1000NR, same line layout as far as DFA has indicated.
- Top rate 3.7% instead of 3.9% above $26,400; the tax table printed with the 2026 forms will reflect it.
- Standard deduction ($2,470 / $4,940 for 2025), $29 credits, thresholds and the Low Income Table limits are indexed; 2026 figures to come.
- Tips, overtime, car-loan interest and the senior deduction: taxed exactly as in 2025. No add-back, because nothing was taken out; the risk is software taking them out by mistake.
- Dependent-care FSA contributions above $5,000 are Arkansas wages even though excluded federally up to $7,500.
- Bonus depreciation on a business, farm or rental: Form AR-OI, and an Arkansas depreciation schedule now very different from the federal one.
- Teachers: $1,000 on Form AR1000CE. Homeowners: nothing on the return; the $675 credit appears on the 2027 property tax bill.
What to bring
- Last year’s AR1000F, so the two returns can be compared line by line
- Every W-2, with Box 1 (which Arkansas taxes in full) and Box 10 dependent-care benefits noted
- Final 2026 pay stub, to see whether Arkansas withholding dropped after June
- Teachers: receipts for classroom supplies, up to $1,000 each
- Any 529 statement showing a Roth IRA rollover in 2026
- For a business, farm or rental: the federal Form 4562 and last year’s Form AR-OI
- Any letter from the Department of Finance and Administration
Questions people ask
Did the Arkansas rate really change in the middle of the year?
The law changed on May 6, 2026, but it applies to the whole of tax year 2026. Your return is figured at 3.7% on everything above the top threshold from January 1. Withholding at 3.9% for the first part of the year is simply over-withholding, and it comes back when you file.
I pay no federal tax on my tips now. Do I pay Arkansas tax on them?
Yes. The federal tips deduction is a federal deduction only. Arkansas has not adopted IRC 224, and its return never saw the federal deduction to begin with because it is built from Arkansas gross income. Tips are on line 8 of the AR1000F with the rest of your wages. The same goes for overtime.
I am 68. Does the $6,000 senior deduction help on my Arkansas return?
No. That deduction exists only in federal law. Arkansas gives you a $29 extra personal credit at 65, excludes the first $6,000 of pension or IRA income, and does not tax Social Security at all. Those three were all in place before 2025 and none changed for 2026.
My business took 100% bonus depreciation on a 2026 truck. What does Arkansas do with it?
Arkansas disallows the bonus and depreciates the truck over its normal life, tracked on Form AR-OI. Over the life of the truck the total deduction is the same; in 2026 the Arkansas deduction is much smaller, and the Arkansas basis of the truck is higher when you sell it, which Schedule AR1000D adjusts for.
Lower rate, same return, no federal shortcuts
Expect a slightly larger refund from the 3.7% rate, and expect every dollar of tips, overtime and senior income to be taxed exactly as it was last year.
Written by Charles Trautman, EA, editor · Need to Know Tax, Lone Tree, Colorado
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Forms and official pages named in this article
- 2025 AR1000F and AR1000NR instructions, including the 2025 standard deduction, personal credits and filing thresholds
- 2026 Arkansas withholding tax formula
- Additional Tax Credit for Qualified Individuals worksheet, 2025 (AR1000TC line 6)
- Schedule AR1000D, Capital Gains, with the depreciation-difference adjustment lines
- DFA individual income tax forms index: AR1000ADJ, AR1000CE, AR1000TC, AR2441, AR3, AR-OI, AR4EC and the rest
Sources and where to check
- Arkansas House of Representatives: Tax cuts passed in special session (HB1001 and SB1, Acts 1 and 2 of 2026)
- HB1001, 2026 First Extraordinary Session: bill text and status (Act 1, signed May 6, 2026)
- Talk Business & Politics: Governor signs tax cuts into law, with DFA cost estimates
- EY Tax Alert 2026-1239: Arkansas lowers top rate retroactive to January 1, 2026; revised withholding
- Bloomberg Tax: Arkansas reduces highest rate in 2026 withholding methods (May 29, 2026 revision)
- EY Tax Alert 2026-2029: Arkansas does not uniformly adopt the 2025 federal law’s compensation and benefits provisions
- HB1103, 2026 Fiscal Session: homestead credit to $675 (Act 174, May 1, 2026)
- Arkansas Advocate: homestead tax credit bill advances in the fiscal session
- Kiplinger: Arkansas grocery tax repeal, January 1, 2026
- KTLO: the statewide measures on the November 2026 ballot