What the New Arkansas Tax Cuts Mean for You
Arkansas has enacted new tax legislation. Understand the updated tax rates and credits and see how they affect individuals, homeowners, and businesses.
Arkansas recently enacted tax legislation, introducing changes for both individual residents and corporate entities. Lawmakers approved measures that will lower income tax rates and provide additional property tax relief. These adjustments are part of a continuing series of tax reductions in the state over the past several years. The new laws were passed during a special legislative session and signed into law in June 2024.
New Individual Income Tax Rates
The primary change for individuals is the reduction of the state’s top personal income tax rate from 4.4% to 3.9%. This tax cut is retroactive, applying to all income earned since January 1, 2024. This accelerates previously planned rate reductions for the current year.
Any taxpayer with a taxable income exceeding $25,000 will see some benefit from this rate change. This reduction impacts the amount of state tax withheld from employee paychecks and the total tax due when filing annual returns.
The financial impact of this tax cut, combined with corporate changes, is estimated to reduce state revenue by approximately $483 million in the first year. To account for this, $290 million will be transferred from the state’s surplus into a reserve fund as a financial cushion.
New Corporate Income Tax Rates
Businesses in Arkansas will also see a reduction in their state tax obligations. The new legislation lowers the top corporate income tax rate from 4.8% to 4.3%. This change is also retroactive to the start of the 2024 calendar year.
This 0.5 percentage point decrease continues a trend of corporate tax reductions in the state. State finance officials project the annual cost of the corporate and individual rate reductions to be around $322 million after the initial year.
Homestead Property Tax Credit Changes
Homeowners will benefit from an increase in the state’s homestead property tax credit, which reduces the property tax bill on a homeowner’s principal place of residence. The new law increases the maximum credit amount from $425 to $500. This provides an additional $75 in direct property tax relief for eligible homeowners.
This enhancement to the homestead credit is also effective retroactively to January 1, 2024. The increased credit will apply to property tax bills for the current year. Eligibility for the credit is limited to property that serves as the owner’s primary residence.
The cost of this specific tax relief is estimated at $46 million annually. Unlike the income tax cuts, which affect the state’s general fund, the property tax credit is funded through a dedicated special sales tax.