When you file your Arkansas state income tax return there are several tax benefits available that could reduce your state tax if you qualify. Some of these benefits are the same as, or similar to the benefits you can claim on your federal income tax return, but some are different. If you file your tax return using tax software, you may be prompted to take these benefits, or they may be included in the calculations. But you should be aware of them and review your Arkansas state tax return before sending it. And if you are preparing your own return on paper, you will need to know about the benefits and include them in your return.
The first $6,000 of income you receive from a retirement plan, including disability, sponsored by your employer is exempt from Arkansas state income tax. If you contributed after-tax dollars to the plan in tax years 2003 and later, you can recover your investment in the retirement plan and then claim an exemption for the first $6,000 you receive.
If you take money out of a traditional IRA after you reach the age of 59 ½, the first $6,000 is exempt from tax. Premature distributions you take due to the IRA participant’s death or disability also qualify for the exemption, for example money withdrawn from the IRA by the surviving spouse. But other early withdrawals you take, for example to pay medical expenses, higher education expenses, or to buy a home do not qualify for the exemption. The total exemption on income from a retirement plan sponsored by your employer and the withdrawals you take from an IRA, after recovering your cost, cannot exceed $6,000. On your tax return you have to show the total amounts and the taxable amounts after the exemption.
If you are a military officer, the first $9,000 of your compensation is exempt from Arkansas state income tax. On your tax return you need to show your total military compensation and the taxable amount after the exemption. Combat zone compensation is exempt from tax and the income of a member of the armed forces is exempt in the year of the person’s death. U.S. military retirement pay does not qualify for the $9,000 exemption on military compensation, but it does qualify for the $6,000 exemption on retirement pay.
When you are in the military and your ability to pay your income tax is materially affected by your service, you can defer payment until up to 180 days after your service ends or you are released from military service. No interest or penalties accrue during this deferment period.
If you are in the military and are stationed in Arkansas, but you are not an Arkansas resident, your military pay is not subject to Arkansas state income tax.
If you had losses from selling investments or other assets, the amount of the loss you can deduct for Arkansas state income tax purposes is limited to $3,000 ($1,500 if married filing separately). You can carry forward the unused part of the loss to later years until it is used up. If you have a business and you incur a net operating loss, you can use the loss to offset any other taxable income you have. You can carry forward the unused portion of your net operating loss for five years.
There are various deductions you can claim on your Arkansas income tax return if you qualify. Most of these deductions are claimed on form AR1000ADJ, Schedule of Other Adjustments. These deductions are in addition to the itemized deductions you claim on form AR3 or the standard deduction.
If you are self-employed you can claim a deduction for the cost of a health insurance plan you set up under the business that covers you, your spouse, and your dependents. The amount you can deduct is the amount you paid during the year for health insurance coverage, up to your net profit from the business. You can also claim a deduction on your Arkansas state income tax return for contributions you make to a KEOGH, self-employed SEP or Simple Plan you set up for your business.
You can claim a deduction for the contributions you make to your own IRA. If neither you nor your spouse is covered by a retirement savings plan at work, you can each claim a deduction for up to $5,000 of contributions to your IRAs. If either of you is covered by a plan at work, the deduction you can claim for contributions to your own IRAs depends on the level of your adjusted gross income. If you will be 50 years old before the end of the tax year, you can claim an additional deduction of up to $1,000 for “catch-up” contributions.
Contributions you make to an Archer Medical Savings Account (MSA) that covers you, your spouse and dependents are deductible. To be eligible, you must have health insurance coverage with a high deductible. You cannot establish a new Archer MSA after 2005, but you can claim a deduction for your contributions to an existing plan. You can also make pre-tax contributions to a Health Savings Account if you have a high deductible health insurance policy. These contributions reduce your income subject to Arkansas state income tax. If you reach 55 years of age by the end of the tax year you can increase your annual contribution.
Arkansas provides tax benefits for education. You can claim a deduction for tuition paid to post-secondary educational institutions using form AR1075. Interest you paid on a student loan qualifies as an itemized deduction on form AR3. You can deduct up to $5,000 per year for contributions you make to a tuition savings account established under the Arkansas Tax Deferred Tuition Savings Program. This deduction is claimed on form AR1000 if you are a full year resident or AR1000NR if you are a partial year resident or non-resident.
If you incurred moving expenses related to your job or self-employment, and the move added at least 50 miles to the distance from your old home to your new workplace, you can claim a deduction for certain qualifying expenses. The deduction on your Arkansas tax return is based on form 3903, Moving Expenses that you file with your federal tax return.
If you have a disabled dependent you can claim a $500 deduction. You need to attach Form AR1000DC, Disabled Individual Certificate. If you paid alimony or separate maintenance to your former spouse under a court order, you can claim a deduction.
If you place your dependent child in a child care facility while you work or look for work, you can claim a credit on your Arkansas state income tax return. The amount of the credit is 20% of the Federal Child Care Credit. The child care facility must be approved by the Arkansas Department of Education and you have to enter the certification number on your tax return.
If you adopt a child you can claim a credit for 20% of the adoption credit you claim on your federal tax return.
If you are an Arkansas resident and work in another state and your income was taxed in that state, you can claim a tax credit on your Arkansas state tax return for the taxes you paid in the other state, provided you include that income on your Arkansas return. You would need to include a signed copy of the tax return you filed in the other state.
Free electronic filing
You may be able to file your Arkansas state income tax return, along with your federal tax return, electronically for free. Different software providers have different requirements for filing free, but generally if your adjusted gross income is below a certain amount, you are eligible for the federal earned income tax credit, or you are a member of the military, you qualify for free electronic filing. You can check the requirements on the Arkansas Department of Finance & Administration website.
Arkansas Individual Income Tax Forms and Instructions – Arkansas Department of Finance & Administration