Arkansas does not levy an estate tax. The federal government does have an estate tax, though, and Arkansas residents may be subject to that if the value of their estate is high enough. This guide is for residents of The Natural State who are starting to think about estate planning and want to make sure everything is taken care of when they are gone. If you want more help with estate planning or any other financial planning matter, finding a financial advisor may make sense. SmartAsset has a free financial advisor matching service that can help you find an advisor in your area.
Arkansas Estate Tax
Arkansas has no estate tax. It is one of 38 states without a state-level estate tax.
What Is the Estate Tax?
The estate tax — sometimes referred to as the “death tax” — is a tax levied on the estate of a person who is recently deceased. It is applied before the money has been passed on to a person’s heirs and is only relevant for estates that reach a certain threshold.
The inheritance tax is different from the estate tax. Beneficiaries are responsible for paying inheritance tax on the money or assets they receive, whereas the estate of the deceased is responsible for paying estate taxes.
Arkansas Inheritance and Gift Tax
Arkansas also has no inheritance tax. Inheritance laws of other states may apply to you, though, if you inherit money or assets from someone who lives in a state that has an inheritance tax. The Pennsylvania inheritance tax, for instance, applies to out-of-state inheritors. If you receive an inheritance from someone living out-of-state, make sure to check the local laws in your grantor’s state to see if you owe inheritance tax.
Arkansas also has no gift tax. The federal gift tax exclusion is $15,000 per year per gift recipient. If you give more than that amount to any one person in a given year, you must report it to the IRS. Any amount gifted over the exclusion also counts against your lifetime gift tax exemption of $11.18 million and decreases your federal estate tax exemption, described below.
Federal Estate Tax
Arkansas doesn’t have an estate tax, but the federal estate tax may still apply. The federal estate tax exemption is $11.18 million, which increased when the new tax bill was signed in 2017. Married couples can transfer their exemption to each other. This means that, with the right legal maneuvers, a married couple’s estate is protected to up to $22.36 million when the second spouse dies.
If your estate exceeds the exemption, the tax rate is progressive. The top tax rate is 40%. This is how it works: Let’s say you have an $18 million estate and no spouse. Subtract the $11.18 million exemption, and you are left with a taxable estate of $6.82 million. Looking at the chart, you are in the top bracket, with a base payment of $345,800 on the first $1 million. Then, apply the 40% tax rate on the remaining $5.82 million. That comes to $2.382 million. Add to that the $345,800 base payment and your total estate tax burden is $2,673,800.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the federal exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Arkansas Tax Picture
Arkansas is a fairly tax-friendly state for retirees. The state does not tax Social Security income. It does partially tax withdrawals from retirement accounts, like 401(k) plans and IRAs. The same is true for income from private or public pensions. The first $6,000 of retirement income is exempt if you are older than 59 1/2.
Income tax in Arkansas is progressive, with a top rate of 6.90%. Property taxes are the ninth lowest in the nation, with an effective rate of just 0.63%. There is also a homestead tax credit of $350 that anyone can claim on their primary residence.
Arkansas has high sales taxes, though. The state rate is 6.50%. Local rates make the state average 9.30%. The rate reaches more than 11% in some cities, however, when city, county and state rates are all included.
Estate Planning Tips
- Estate planning, like any type of financial planning, isn’t easy. It might make sense to get help from a financial advisor. SmartAsset can help you find a financial advisor with our free financial advisor matching service. You answer a few questions and we match you with up to three advisors in your area. We have fully vetted all of our advisors and ensured they’re free of disclosures. You can talk to each of your advisor matches to see if one of them is a good fit for you.
- There are a number of options for how to plan your estate, including wills and living trusts. Your financial advisor can help you figure out which is the best choice for you.
- It’s important to take inventory of all of your income sources when planning your estate. This ensures that you have an accurate picture of how much money you may be passing on. It may not be much, but you will likely be getting Social Security checks in retirement. Find out how much you’ll likely receive annually with our free Social Security calculator.
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