Overview of Arkansas Retirement Tax Friendliness
Arkansas does not tax Social Security retirement benefits. Property taxes in the state are among the lowest in the U.S. On the other hand, sales taxes in Arkansas are quite high.
Annual Social Security Income
Annual Retirement Account Income
Year of Birth
Annual Income from Private Pension
Annual Income from Public Pension
|is toward retirees.|
|Social Security income is taxed.|
|Withdrawals from retirement accounts are taxed.|
|Wages are taxed at normal rates, and your marginal state tax rate is %.|
- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
Arkansas Retirement Taxes
Arkansas is the 33rd largest U.S. state, with a population of about three million people. According to the U.S. Census Bureau, 23.1% of the population of Arkansas is older than 60 years of age. This is somewhat higher than the national percentage of 22.3%.
Retirees living in Arkansas enjoy relatively low taxes, especially on income and property. The state does not tax Social Security, and its property taxes are among the lowest in the U.S. On the other hand, sales taxes in Arkansas are quite high.
A financial advisor in Arkansas can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial plans, including taxes, homeownership, insurance and estate planning, to make sure you are preparing for the future.
Is Arkansas tax-friendly for retirees?
Arkansas is a relatively tax-friendly state for retirees. Social Security is totally exempt from the state’s income tax. Arkansas also offers seniors a deduction of $6,000 for other types of retirement income like from pensions or an IRA. While the state sales taxes are some of the highest in the country, that is at least partly offset by property taxes that rank among the lowest in the U.S.
Is Social Security taxable in Arkansas?
While Arkansas does have a state income tax, it does not apply to Social Security income.
Are other forms of retirement income taxable in Arkansas?
Yes, but they may also be eligible for an exemption. Specifically, for persons age 59.5 or older, income from pensions or retirement accounts qualifies for an exemption of up to $6,000.
That deduction applies to the combined total from all accounts and pensions, so if you have income from both a 401(k) and a public pension, you can still only claim one deduction of up to $6,000. Married couples who both have retirement income can claim the deduction twice, one for each person’s retirement income. Retirement income above that deduction is taxed at the normal income tax rates, shown in the table below.
Income Tax Brackets
|Arkansas Taxable Income||Rate|
|$0 - $4,500||0.00%|
|$4,501 - $8,900||2.00%|
|$8,901 - $13,400||3.00%|
|$13,401 - $22,200||3.40%|
|$22,201 - $37,200||5.00%|
|$37,201 - $79,300||6.00%|
How high are property taxes in Arkansas?
Property taxes in Arkansas are quite low. Homeowners pay about $743 annually on average, the third lowest amount in the country. One reason for this is that home values in Arkansas are below-average compared to the rest of the country. In fact, the median home value in the state is $118,500, $75,000 lower than the national median.
What is the Arkansas homestead exemption?
In Arkansas, the homestead exemption is called a homestead tax credit. It is equal to up to $375 per year and may be claimed on a homeowner’s principal place of residence. Any homeowner living in his or her principal place of residence may claim the credit, including seniors. Retirees who live in a nursing center or retirement home but also own their own home may still claim the credit.
How high are sales taxes in Arkansas?
Sales taxes in Arkansas are very high. In fact, when considering both state and local taxes, Arkansas has the third highest sales tax rate in the entire country. The average rate, including the state rate of 6.50% and the average of all local rates, is 9.43%.
That does not apply to all purchases. Some items that are especially important to seniors are exempt, including prescription drugs and all durable medical equipment like wheel chairs or prosthetic limbs. Groceries are subject to a lower state sales tax of 0.125%. Local sales tax rates are the same.
What other Arkansas taxes should I be concerned about?
One tax seniors should be aware of in Arkansas is the capital gains tax. Capital gains are taxed as regular income in Arkansas but receive an exemption of 50%. So if you have investments in assets outside of a retirement account and they gain value, keep in mind you will pay income taxes on most of those gains.
On the other hand, Arkansas does not have an estate or inheritance tax. Retirees hoping to pass on some of their wealth to the next generation can do so tax-free, at least at the state level.
Most Tax Friendly Places for Retirees
SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.
Methodology To find the most tax friendly places for retirees, our study analyzed how the tax policies of each city would impact a theoretical retiree with an annual income of $50,000. Our analysis assumes a retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from a retirement savings account like a 401(k) or IRA.
To calculate the expected income tax this person would pay in each location, we applied the relevant deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at federal, state, county and local levels.
We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.
In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income after subtracting income tax. This product is then multiplied by 35% to estimate the sales tax paid.
For fuel taxes, we first distributed statewide vehicle miles traveled to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.
For each city we determined whether or not Social Security income was taxable.
Finally, we created an overall index weighted to best capture the taxes that most affect retirees. The income tax category made up 40% of the index, property taxes accounted for 30%, sales taxes 20% and fuel taxes 10%.
Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2018 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration