Arkansas Payroll Tax Guide: Essential Information for Employers

Managing payroll taxes in Arkansas requires accuracy and attention to detail. State income tax laws can affect withholding calculations, forms, and deadlines, making it important for employers to stay informed. Even small missteps can lead to compliance issues or financial penalties.

Arkansas uses a progressive income tax system, which means tax rates increase as earnings rise. Employers need to apply the correct tax brackets and ensure employees submit the appropriate state or federal withholding form. Keeping payroll tax processes organized simplifies compliance and helps employees avoid surprises when filing their taxes.

This section explains the structure of Arkansas state income taxes, including current tax rates, withholding requirements, and recent updates. Employers can use this information to streamline payroll and reduce errors.

Arkansas Income Tax Overview

Arkansas state income tax follows a progressive structure with rates starting at 0% and reaching up to 3.9% for higher income levels. Taxable income brackets determine the percentage applied, ensuring employees with higher earnings contribute proportionately more in taxes. This tiered system adjusts annually to account for changes in state tax policy.

Employers must withhold state income tax from employee wages based on their taxable income. Employees determine withholding amounts by completing either the Arkansas AR4EC or the federal W-4 form. The AR4EC allows employees to specify their marital status, number of exemptions, and any additional withholding amounts they choose to include.

Payroll systems that calculate withholding automatically can help employers manage changing tax brackets, deductions, and exemptions with precision. For example, in 2024, Arkansas increased the standard deduction to $2,340 and raised the income threshold for adjusted taxable wages to $100,001. These adjustments require employers to stay updated to accurately calculate withholdings and meet their reporting obligations.

Unemployment Insurance (SUI) Requirements

Arkansas employers are responsible for paying State Unemployment Insurance (SUI) taxes to support unemployment benefits for eligible workers. These contributions are based on employee wages and must be calculated and reported accurately to stay compliant with state regulations.

SUI Tax Rates for Employers

SUI tax rates in Arkansas depend on whether a business is new or has an established history. New employers are assigned a predetermined rate by the state, which was 2.9% for 2024. Established employers are given a rate determined by their unemployment claims record and payroll history, meaning businesses with fewer claims generally receive lower rates.

The taxable wage base for Arkansas SUI applies to the first $7,000 of each employee's wages every year. Once an employee exceeds this amount, no further SUI tax is calculated on their earnings for that calendar year.

Reporting Deadlines and Oversight

The Arkansas Department of Workforce Services manages SUI tax collection and reporting. Employers must submit quarterly filings, which include wages paid, contributions owed, and other required details. Deadlines for these filings follow a consistent schedule:

First Quarter (January-March): Due by April 30
Second Quarter (April-June): Due by July 31
Third Quarter (July-September): Due by October 31
Fourth Quarter (October-December): Due by January 31 of the following year

Employers can submit reports using the Department of Workforce Services' online system or by mailing the required forms. Late submissions may result in penalties, so timely filing is key to avoiding unnecessary costs.

Special Withholding Rules and Exemptions

Arkansas payroll taxes include specific exemptions for certain employees based on their residency, employment status, or income level. These exemptions require employers to follow exact guidelines and properly apply withholding adjustments to avoid errors.

Border City Exemption for Texarkana Residents

Employees who live and work in Texarkana, a city split between Arkansas and Texas, may qualify for a tax exemption on wages earned in the Arkansas portion of the city. Employers must ensure eligible employees complete the AR4EC-TX form, which certifies their exemption status. Once submitted, employers should withhold no Arkansas state income tax from these wages. Retaining the certificate in employee records is necessary for compliance. Employers making payroll adjustments without proper documentation risk errors in withholding.

Military Spouse Exemptions

Military spouses stationed in Arkansas can claim exemptions under the Military Spouses Residency Relief Act. Two specific forms apply:

AR4MEC: This form is for military employees and their spouses who qualify for exempt status based on residency outside Arkansas.
ARW-4MS: This certificate applies when a military spouse claims exemption due to residency in another state.

Employers must collect and process the correct form to exempt qualifying wages from Arkansas withholding. Once the exemption is applied, employers should monitor for any changes to the employee's residency or circumstances that could impact their tax status.

Low Income Tax Tables and Credits

Employees with lower earnings may elect to use Arkansas's low income tax tables to reduce withholding amounts. Eligibility depends on filing status and annual wages. For instance:

Single employees may qualify for credits up to $107.64.
Married employees with two or more exemptions can claim up to $505.96.
Heads of household with dependents may also qualify for reductions based on income thresholds.

Employees must indicate their election on the AR4EC or W-4 form. Employers are responsible for calculating withholding accurately using state-provided credits and formulas. Missteps in applying these credits can result in incorrect paycheck amounts or tax filing issues.

Reporting and Payment Deadlines

Employers managing Arkansas state payroll taxes must meet specific deadlines throughout the year to remain compliant. Late submissions or missed payments can lead to penalties and unnecessary complications. Consistently following the required schedules helps ensure smooth payroll operations and avoids compliance risks.

Monthly or Semi-Weekly Deposit Schedules

Arkansas uses two deposit schedules for withheld state income taxes: monthly or semi-weekly. The assigned schedule depends on the total withholding amount reported during the prior calendar year.

Monthly Deposits: Employers with less than $1,000 in annual state income tax withholding must deposit by the 15th of the following month.
Semi-Weekly Deposits: Employers with $1,000 or more in withholding must deposit within three business days after paying employees.

Employers should monitor withholding totals closely to adhere to the appropriate schedule. Staying organized and planning deposits ahead of due dates can prevent late payments and penalties.

Quarterly SUI Tax Deadlines

State Unemployment Insurance (SUI) taxes are reported and paid quarterly. Employers must submit filings to the Arkansas Department of Workforce Services by the following dates:

First Quarter (January–March): April 30
Second Quarter (April–June): July 31
Third Quarter (July–September): October 31
Fourth Quarter (October–December): January 31

Quarterly reports must include detailed wage data for each employee and the calculated SUI tax contributions. Employers must ensure reported wages do not exceed the $7,000 taxable wage base per employee. Filing electronically simplifies the process, but paper forms are also accepted if submitted on time.

Annual Reconciliation (AR3MAR)

The annual reconciliation form, AR3MAR, summarizes all wages paid and taxes withheld during the prior year. Employers must file the AR3MAR with the Arkansas Department of Finance and Administration by February 28. The totals reported on the AR3MAR must align with quarterly filings and W-2 forms to avoid discrepancies.

Employers should double-check figures and resolve any errors before submitting the AR3MAR. Even businesses with no wages paid or no withholding during the year are required to file the form. Accuracy is vital for a smooth reconciliation process.

W-2 and 1099 Filing Requirements

Employers must submit W-2 and 1099 forms to the Arkansas Department of Finance and Administration by January 31. Each filing must include the appropriate transmittal form:

W-2 Forms: Must be accompanied by the ARW-3, which acts as the transmittal of wage and tax statements.
1099 Forms: Must be submitted with a copy of federal form 1096, summarizing non-employee compensation.

Both W-2 and 1099 forms must reflect accurate withholding amounts and employer identification details. Errors in these forms can lead to corrections and delays, so proper review before submission is essential. Electronic filing is strongly encouraged for faster processing.

Adhering to these deadlines keeps payroll tax operations compliant and prevents unnecessary penalties.

Employer Obligations for Forms and Filings

Employers in Arkansas must follow specific filing requirements to handle state payroll taxes correctly. Each mandated form plays a distinct role in ensuring compliance, from setting up employee withholdings to reconciling annual tax data. Understanding how and when to complete these forms is key to avoiding mistakes.

Required Forms for Payroll Compliance

Arkansas payroll tax filings involve several forms, each serving a clear purpose:

AR4EC: Employees complete the Employee's Withholding Exemption Certificate to specify their state income tax preferences. This includes information like marital status, number of dependents, and additional withholding amounts. Employers must retain completed AR4EC forms in their records for reference.
AR4ECSP: This Special Withholding Exemption Certificate is used when employees claim specific exemptions, such as nonresident tax status. Employers calculate withholding amounts based on the data provided on this form.
ARW-3: The Transmittal of Wage and Tax Statements summarizes total wages paid and taxes withheld for the prior year. Employers submit this form along with W-2s and 1099s no later than January 31.
AR3MAR: The Annual Reconciliation of Income Tax Withheld consolidates all quarterly tax reports into one final document. This form is due by February 28 and ensures the previous year's payroll data aligns with other filings.

Filing Methods

Arkansas offers two filing methods: electronic submission or paper filing. Employers should carefully choose the option that suits their process and capacity.

Electronic Filing: The Arkansas Taxpayer Access Point (ATAP) simplifies submissions for ARW-3, AR3MAR, and quarterly wage reports. It automates calculations and provides instant confirmation of receipt. Employers need to register on the ATAP portal to file online.
Paper Filing: Employers opting for mail submissions must download and complete paper forms. Clear and accurate information is essential to avoid processing delays.

Where to Send Paper Forms

Employers mailing Arkansas payroll tax forms should send completed documents to the address below:

Withholding Tax Branch
Arkansas Department of Finance and Administration
P.O. Box 9941
Little Rock, AR 72203-9941

Include all required forms and payments in one package. Using certified mail can help confirm safe and timely delivery.

Frequently Asked Questions

Understanding Arkansas state payroll taxes doesn't have to be complicated. Below are clear answers to common questions about employer responsibilities and employee expectations.

What are the payroll taxes in Arkansas?

Employers in Arkansas handle two primary payroll taxes:

State income tax withholding: Employers must deduct state income tax from employee paychecks based on withholding certificates like the AR4EC or W-4. The state uses a progressive tax system, with rates ranging from 0% to 3.9%, depending on the employee's taxable income.
State Unemployment Insurance (SUI): Employers pay SUI taxes on the first $7,000 of each employee's annual wages. Rates for new businesses are assigned by the state, while established businesses are given rates based on their unemployment claims history.

Federal payroll taxes, like Social Security and Medicare, are separate from Arkansas state requirements and must also be managed.

Do you pay state income tax in Arkansas?

Most employees working in Arkansas pay state income tax through payroll deductions. However, there are exemptions for specific individuals:

Residents of Texarkana who work within the city's Arkansas limits can qualify for a state income tax exemption by submitting the AR4EC-TX form.
Military spouses with residency in another state may claim exemption by filing the ARW-4MS form.

Employers should ensure employees submit the correct forms to apply exemptions properly.

How do I calculate my payroll taxes?

Employers follow a straightforward process to calculate Arkansas payroll taxes:

Start with gross wages for the pay period.
Deduct pre-tax items, such as contributions to retirement plans or health insurance.
Use Arkansas withholding tables to calculate state income tax. Consider the employee's filing status, exemptions, and standard deductions.
Apply SUI tax to the first $7,000 of wages earned annually.
Account for federal payroll taxes, including Social Security and Medicare.

Automated payroll systems can streamline calculations, ensuring accuracy and compliance with Arkansas tax requirements.

What is $720 after taxes in Arkansas?

The net amount of $720 after taxes varies based on the employee's filing status, number of allowances, and pre-tax deductions. For Arkansas, factors such as filing as single or married and the number of dependents claimed directly affect take-home pay.

To calculate the exact figure, use a payroll calculator or software that factors in Arkansas-specific tax rates and exemptions. This provides a clear picture of how deductions impact the final paycheck.

Managing Arkansas payroll taxes requires attention to detail and a commitment to staying current with state regulations. By understanding the forms, deadlines, and calculations involved, you can maintain compliance and avoid costly mistakes. If you're looking for a simpler way to handle payroll taxes and other HR tasks, book a demo with GoCo today and discover how our platform can streamline your processes.