Does Arkansas Tax Military Retirement?
For military retirees in Arkansas, get a clear overview of the state's tax rules for service-related benefits and other common sources of retirement income.
State tax laws are a significant consideration for military retirees when deciding where to live. This analysis clarifies the taxability of military retirement benefits and other common forms of income for retirees in Arkansas.
State Tax Exemption for Military Retirement Pay
Arkansas provides a complete exemption from state income tax for military retirement pay, a policy established by Act 141 in 2017. The law ensures that retirement income received from any branch of the U.S. Armed Forces, including the Army, Navy, Air Force, Marines, Coast Guard, and Space Force, is not subject to Arkansas income tax. This exemption also extends to retirement pay for members of the National Guard and Reserves.
Payments received under the Survivor Benefit Plan (SBP) are also fully exempt from state income tax. This means that surviving spouses receiving SBP annuities do not owe any Arkansas income tax on that income. It is important to recognize that this exemption applies only at the state level. Military retirement pay and SBP benefits remain subject to federal income tax as determined by IRS regulations.
Tax Treatment of Other Income
Beyond military-specific benefits, Arkansas offers other tax advantages for retirees. Social Security benefits are entirely exempt from state income tax. The state does not tax any portion of the Social Security benefits a resident receives, regardless of their total income.
For other types of retirement income, such as distributions from civilian pensions, 401(k)s, or traditional IRAs, Arkansas provides an exclusion of up to $6,000. However, this exclusion interacts with the military retirement exemption. If a retiree’s military retirement pay is $6,000 or more, they cannot claim this separate $6,000 exclusion. If their military pay is less than $6,000, they can exempt their military pay and then apply the remainder of the $6,000 exclusion to their other retirement income.
How to Claim the Exemption on Your Tax Return
Claiming the military retirement exemption on an Arkansas tax return requires a few steps. When completing state income tax forms, such as the AR1000F, you must first report the total amount of military retirement pay received during the tax year. This figure is found on your federal Form 1099-R.
After reporting the total retirement income, you will then subtract the full, exempt amount on the line designated for retirement income exclusions. By reporting the income and then subtracting it, you are properly documenting the exemption for the Arkansas Department of Finance and Administration, resulting in a zero-tax liability for that specific income source.