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Arkansas Reduces Income Tax Rates for Corporations and Individuals

Tax Development Dec 15, 2021

Arkansas Reduces Income Tax Rates for Corporations and Individuals

Having ended the 2021 fiscal year with more than a billion dollars in its long-term reserves, the Arkansas Legislature passed SB1/HB 1001 with the largest tax cut in Arkansas history, which will cost more than $500 million over the next five years. 

To make Arkansas more tax competitive with its neighbors, Governor Asa Hutchinson called for a special session for the Legislature to consider legislation lowering income. The income tax rate cuts will be phased in over the next five years, resulting in a reduction of corporate tax rate from 5.9% to 5.3% and a reduction in individual income tax rate from 5.9% to 4.9%. The first reduction in individual tax rates will be implemented on January 1, 2023. The Governor anticipates that 100,000 taxpayers will no longer pay individual income taxes based on these reductions.  

In addition to gradually reducing the state’s top individual and corporate income tax rates, the bill consolidates the state’s low- and middle-income tax tables; creates a nonrefundable $60 tax credit for all individuals earning $23,600 or less per year; renames the state’s Long-term Reserve Fund as the Catastrophic Reserve Fund; and eliminates the last two scheduled income tax rate reductions if the state is required to use these reserved funds.

The Governor signed the bill on December 9, 2021.


Mark L. Nachbar

Mary Bernard

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