Arkansas Taxes for Retirees: What You Need to Know

Retirees considering Arkansas as their home should understand how the state’s tax policies affect their income. Some forms of retirement income receive favorable treatment, while others remain taxable. Knowing these details helps retirees plan effectively and maximize savings.

Arkansas offers exemptions and deductions that can reduce tax burdens. Property taxes and filing requirements also influence overall costs. Understanding these factors allows retirees to make informed financial decisions.

Social Security Income

Arkansas fully exempts Social Security benefits from state income tax, making it a tax-friendly state for retirees. Regardless of income level, these payments are not taxed at the state level. However, the federal government may still tax them depending on total income.

The IRS considers half of a retiree’s Social Security benefits along with other income sources, such as wages, dividends, and retirement account withdrawals. If this combined income exceeds $25,000 for single filers or $32,000 for married couples filing jointly, a portion of Social Security benefits becomes taxable at the federal level, with up to 85% subject to taxation.

To reduce federal taxes, retirees can withdraw funds strategically from tax-advantaged accounts. Keeping total income below the taxable threshold or delaying Social Security benefits until age 70—resulting in higher monthly payments—can help manage tax liabilities.

Pension and Annuity Income

Arkansas allows an exemption of up to $6,000 per person on qualified retirement income, including pensions, annuities, and employer-sponsored retirement plans. Any pension income exceeding this amount is taxed at rates ranging from 2% to 4.4% in 2024.

Military pensions are fully exempt from state income tax, making Arkansas attractive to veterans. Railroad retirement benefits, which function similarly to Social Security, are also exempt. These exclusions provide significant tax relief for retirees with military or railroad pensions.

For annuities, only the portion considered earnings is taxed, not the principal. The $6,000 exemption applies to annuity withdrawals, but amounts beyond this are taxed. Retirees relying on annuities should account for this in their financial planning.

IRA and 401(k) Withdrawals

Withdrawals from traditional IRAs and 401(k) plans are subject to Arkansas state income tax, but retirees can claim a $6,000 exemption per person. Any withdrawals beyond this amount are taxed at standard rates. Since these accounts are funded with pre-tax dollars, all distributions are fully taxable at both the state and federal levels unless they come from Roth accounts.

Roth IRA and Roth 401(k) withdrawals are tax-free if the retiree is at least 59½ years old and has held the account for at least five years. Since contributions were made with after-tax dollars, qualified distributions—including earnings—are not subject to state or federal taxation.

Required Minimum Distributions (RMDs) begin at age 73 in 2024 for traditional IRAs and 401(k)s. These mandatory withdrawals increase taxable income and can push retirees into higher tax brackets. Failing to take RMDs results in a 25% penalty on the amount not withdrawn, though correcting the mistake in a timely manner reduces the penalty to 10%. Spreading withdrawals over multiple years or converting portions of traditional IRAs to Roth accounts can help manage tax liabilities.

State-Specific Tax Exemptions

Arkansas offers a homestead property tax credit of up to $425 annually for homeowners using their property as a primary residence. Retirees must apply through their county assessor’s office to receive this credit.

Medical and dental expenses exceeding 7.5% of adjusted gross income are deductible, following federal tax rules. This benefits retirees with high healthcare costs, as expenses for prescriptions, doctor visits, and long-term care services may qualify. Additionally, Arkansas does not impose sales tax on prescription drugs.

Property Tax Factors

Arkansas has relatively low property tax rates, with an average effective rate of 0.61%, compared to the national average of 0.99%. However, actual tax burdens vary by county, as local governments set millage rates. Retirees should research county-specific rates before relocating.

Homeowners aged 65 and older can apply for a property tax freeze on the assessed value of their primary residence. Once granted, the home’s taxable value will not increase, even if market prices rise. This freeze applies to county and municipal property taxes but does not cover special assessments or school district taxes. Retirees must apply through their local county assessor’s office and provide proof of age and residency. Major home improvements, such as adding new structures, may still result in adjustments to assessed value.

Filing Obligations

Retirees in Arkansas must file a state tax return if their income exceeds certain thresholds. For the 2024 tax year, single filers under 65 must file if their gross income exceeds $14,700, while those 65 and older have a higher threshold of $15,700. Married couples filing jointly must file if their combined income surpasses $30,800. These thresholds align with federal standard deduction levels, meaning lower-income retirees may not need to file.

Arkansas residents must file state tax returns by April 15, matching the federal deadline. The state offers an electronic filing system through the Arkansas Department of Finance and Administration for faster processing. Retirees owing more than $1,000 in state taxes may need to make estimated quarterly payments to avoid penalties. Arkansas also provides income tax credits for taxes paid to other states, benefiting retirees receiving income from outside Arkansas.