Summary of 2021 Arkansas Income/Franchise Taxes Legislation

Act 154 creates an exemption from income tax for unemployment compensation benefits paid from federal unemployment funds or under Title IV of the Social Security Act for calendar years 2020 or 2021.

Act 248 conforms to the federal exemptions for Paycheck Protection Program loan forgiveness and certain other coronavirus aid as provided under the federal Consolidated Appropriations Act 2021. In addition, the Act exempts payments received under the Coronavirus Food Assistance Program are excluded. Effective for tax years beginning on or after January 1, 2019. The estimated savings to Arkansas taxpayers is $212 million.

Act 283 allows the withholding of state income tax from unemployment compensation and unemployment insurance benefits. Withholding under this Act shall begin on the first of the calendar month following the Secretary of the DFA issuance of a proclamation to so withhold.

Act 362 establishes the Elective Pass-Through Entity Tax Act. This is a SALT cap workaround that allows pass-through entities to pay tax at the entity level, where the federal SALT cap does not apply, instead of having the income flow through for state purposes to be taxed at the individual owner level. The election is available for tax years beginning on or after January 1, 2022. It is projected to save Arkansas businesses $50 million or more in federal taxes.

Act 592 requires casinos to file a report of gambling winnings paid to an individual with DFA and requires casinos subject to federal withholding to also withhold Arkansas taxes.

Act 629 establishes the deadline for state return filing following application for a federal extension as one month after the extended federal deadline.

Act 635 extends the 2021 Arkansas individual income tax filing and payment deadline from April 15 to May 17, in further response to COVID-19's impact on the state and to correspond with the extension of the federal individual income tax filing deadline (except for C corporations).

Act 765 establishes the Law Enforcement Family Relief Check-Off Program and the Law Enforcement Family Relief Trust Fund. Creates a check-off on income tax forms for donations to the program and the trust fund. Effective for tax years beginning on or after January 1, 2022.

Act 882 makes various tax changes relating to Achieving a Better Life Experience (ABLE) accounts. These include specifying that only the earnings portion of a nonqualified distribution from an ABLE account is taxable and providing a four-year carryforward for contribution deductions exceeding the $5,000 maximum. Effective for tax years beginning on or after January 1, 2021.

Act 966 changes the name of the 529 account program from the Arkansas Tax-Deferred Tuition Savings Program Act to the Arkansas Brighter Future Fund Plan Act and makes various drafting changes.

Act 966 also slightly adjusts the rules for deductions for contributions and rollovers to 529 accounts for tax years beginning on or after January 1, 2021.

Act 971 increases the income tax deduction amount for a teacher’s classroom expense to $500 for individual teachers, and $1,000 for teachers married filing jointly. Effective for tax years beginning on or after January 1, 2021.

Act 1019 clarifies the allocation of remote worker income. A nonresident’s income is taxable only on the income allocable to work performed when physically present within Arkansas. This reverses the administrative adoption of remote worker taxation (a convenience of the employer rule) by the Department of Finance and Administration. Wage withholding requirements are updated accordingly, as is the resident credit for taxes paid to other states. Effective for tax years beginning on or after January 1, 2021 (except for the wage withholding effective May 1, 2021).

Act 1041 establishes the Uniform Limited Liability Company Act and repeals the Small Business Entity Tax Pass-Through Act. It provides that a limited liability company must have the same state tax classification as federal tax classification (except if it elects to be subject to the elective pass-through entity tax).

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