Arkansas assesses an individual income tax and the state tax structure is designed similar to the federal income tax system. There are a few key differences between state and federal taxes, forms, and tax filing. Arkansas allows either Joint or Combined filing for married couples. Under the combined tax return system, the income of each spouse is taxed separately. For two income families, this system allows each spouse to benefit from the low tax rates at the beginning of the tax rate schedule. Taxpayer can calculate the state taxes based on joint and combined and choose to file return which is advantageous to them. Major differences from Federal Taxes are given below.
Interest/Divident Income: Interest and Divident income from U.S. government bonds are exempt from State Taxes.
Rent Income: Same as federal.
Capital Gain: Arkansas capital gain and loss taxes are similar to federal taxes, but you can adjust the amount of gain or loss for any federal/state depreciation differences. In Arkansas only 70% of net long term capital gain is taxed.
Unemployment Income: Unemployment income is exempt from state taxes.
Social Security Benefits: All social security income is exempt from state taxes.
State Bond Interest: Taxable except Arkansas obligations.
Health Savings Accounts: Same as federal.
Disability: Same as federal.
Federal Income Tax: Not deductible.
Other Taxes: Border city exemption. Deductions for support of a permanently disabled dependent, long-term intergenerational trusts, organ donor expenses, and contribution to a deferred tuition savings plan.
Check other state tax links below.