An Arkansas tax bill signed by Gov. Sarah Huckabee Sanders cuts taxes for corporations and individual taxpayers and provides a temporary non-refundable tax credit to eligible residents. This is the second time Arkansas lawmakers have reduced income tax rates this year. The state was able to provide this tax relief due to a $1.161 billion general revenue surplus for the 2023 fiscal year.
Some supporters of the income tax cuts, including Randy Zook, president and chief executive officer of the Arkansas State Chamber of Commerce, say the legislation will create more jobs and attract new residents. However, others argue that the newly enacted tax relief primarily benefits the wealthy while taking state funding away from residents with lower incomes.
Arkansas Advocates for Children and Families referred to the latest tax cuts as only offering “meager benefits to most low- and middle-income taxpayers. The advocacy group cites an Institute on Taxation and Economic Policy (ITEP) model, showing that Arkansas residents with average incomes over $1.6 million annually would benefit from an average tax cut of $3,409. Middle-class Arkansas families making $52,000 would only see a $35 tax cut.
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New Arkansas tax cut bill
The latest Arkansas tax cut bill signed into law by Gov. Sanders on Sept. 14 further reduces the state’s top income tax rate from 4.7% to 4.4%, (This rate was previously reduced from 4.9% in April 2023.)
The new 4.4% tax rate won’t take effect until 2024, so taxpayers whose incomes fall into the top bracket are subject to the previously reduced rate of 4.7% for 2023. Still, this is a much lower tax rate than most states impose for their wealthiest earners.
- For taxpayers with income between $24,300 to $87,000, the new Arkansas income tax rate of 4.4% will apply to incomes between $24,300 and $87,000.
- The 4.4% tax rate will apply to incomes $8,801 and above for taxpayers whose incomes surpass $87,000.
So, what does this mean? Arkansas taxpayers with incomes above $87,000 will pay less income tax on a portion of their income than taxpayers with lower incomes.
Additionally, all Arkansas corporations with net incomes over $11,000 will pay a tax rate of 4.8% (recently reduced from 5.1%) in 2024.
$150 tax credit in Arkansas
Unlike the income tax cuts, the Arkansas tax credit of up to $150 ($300 for joint filers) is retroactive to tax year 2023. That means eligible residents can claim the credit when they file their 2023 Arkansas state tax return. The tax credit is non-refundable, meaning it can only reduce the tax you owe rather than being credited in the form of a tax refund.
Who qualifies for the tax credit? To qualify for the Arkansas tax credit, taxpayers must meet the following criteria.
- File a full-year 2023 Arkansas tax return.
- Have a net income of $89,600 or less ($179,200 or less for joint filers) to receive the full credit amount.
- Have a net income that does not exceed $103,600 ($207,200 for joint filers) for a reduced credit amount.
The tax credit is temporary and is set to expire for the 2024 tax year. Because the credit is non-refundable, it will not benefit Arkansas taxpayers who have no state income tax liability, which is more common for taxpayers with lower incomes.
So, who benefits most from Arkansas’ tax cuts? Data show that wealthier residents will save the most money under the newest round of income tax cuts in Arkansas. Arkansas taxpayers with the lowest incomes might save the least. (That’s in part because those residents often don’t owe state taxes.)
However, many middle-class Arkansas residents may benefit at least some by paying less income tax (though perhaps by only a small amount) this year and in 2024.
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