Arkansas Withholding Tax: Employer Responsibilities
For Arkansas employers, this guide details the requirements for properly handling employee state tax withholding, ensuring accurate and timely compliance.
Arkansas withholding tax is a method of paying state income tax in advance. Employers are required to deduct this tax from the wages of their employees throughout the year. This system ensures that individuals meet their state income tax obligations gradually with each paycheck, rather than in a single, large payment at the end of the tax year.
Employer Registration and Employee Forms
Any business that pays wages for work performed in Arkansas must establish a withholding tax account with the Arkansas Department of Finance and Administration (DFA). Before beginning the process, an employer needs its Federal Employer Identification Number (FEIN), legal business name, and details about its corporate structure.
The primary method for registration is through the Arkansas Taxpayer Access Point (ATAP), an online portal that streamlines the setup process. While online registration is the preferred method, businesses also have the option to complete the process by mailing paper forms to the DFA. Completing this step is a prerequisite to legally withholding taxes from employee paychecks.
Once registered, employers must have a completed withholding exemption certificate from each employee. For this purpose, Arkansas accepts either the federal Form W-4 or the state-specific Form AR4EC, Employee’s Withholding Exemption Certificate. On these forms, the employee provides their name, address, Social Security Number, and the number of withholding allowances they are claiming.
The number of allowances directly reduces the amount of taxable income, thereby affecting the final tax withheld. Employers are responsible for ensuring they have a valid withholding form on file for each worker before issuing their first paycheck. These forms must be retained in the employer’s records for compliance and audit purposes.
Calculating the Withholding Amount
The Arkansas DFA provides official withholding tax tables to guide employers in calculating the tax for each employee per pay period. These tables are structured to accommodate various pay frequencies, including weekly, bi-weekly, semi-monthly, and monthly schedules. An employer must use the table that corresponds to its specific payroll cycle.
Two primary methods are available for determining the correct withholding amount: the Wage-Bracket Method and the Percentage Method. The Wage-Bracket Method is often simpler, requiring the employer to find the employee’s wage range within the table for their pay period and filing status. The table then directly shows the amount of tax to be withheld.
The Percentage Method offers a more precise calculation. This process involves using the number of allowances claimed on the employee’s withholding form to determine an exemption amount, which is then subtracted from the employee’s gross wages. The resulting net taxable income is then applied to a tax rate formula provided by the DFA to arrive at the final withholding amount.
A separate consideration applies to supplemental wages, such as bonuses, commissions, and overtime pay. For these types of earnings, employers have the option to withhold tax at a flat rate of 3.9%. This simplifies the calculation process compared to combining it with regular wages.
Depositing and Reporting Withheld Taxes
After calculating and withholding the tax, employers must remit the collected funds to the Arkansas DFA. The frequency of these deposits is determined by the DFA, with schedules set to monthly or annually. New employers are typically assigned a monthly deposit schedule, and an employer may be reclassified as an annual filer if their tax deposits are less than $1,000 in a reporting period.
The most common method for submitting these payments is electronically through the Arkansas Taxpayer Access Point (ATAP) portal. This online system allows employers to make payments directly and receive immediate confirmation. For employers who choose not to use the online system, payments can be made by mail with a check or money order along with Form AR941M, the Employer’s Monthly Payment Voucher.
At the end of the year, employers must complete an annual reconciliation using Form AR3MAR, the Annual Reconciliation of Income Tax Withheld. This report summarizes the total wages paid and tax withheld for the entire year and must match the total of the deposits made throughout the year.