Moving From Arkansas Tax Guide 2026: 4.4% Top Rate After Major Cuts, Social Security Exempt & Military Benefits

Arkansas has undergone one of the most rapid income tax transformations of any Southern state. Through a series of legislative tax cuts under Governor Asa Hutchinson (2015–2023) and Governor Sarah Huckabee Sanders (2023–present), Arkansas reduced its top income tax rate from 6.9% (2015) through successive cuts to 4.4% (2024) — with further reductions to 3.9% targeted. Combined with full Social Security and military retirement exemptions, Arkansas has become significantly more tax-competitive in the South. This guide covers Arkansas's reformed tax structure and what departing residents need to know.

Arkansas's Tax Reform Journey and Current Structure

Arkansas's income tax has been dramatically reformed over a decade:

The Rate Reduction Timeline

Each cut was enacted through specific legislation. The 2022 legislation (Act 2 of the Second Extraordinary Session of 2022) and 2023 legislation accelerated the path significantly under Governor Sanders's tax-cutting agenda.

Arkansas vs Tennessee and Texas

For Arkansas residents comparing neighboring no-income-tax states:

• Tennessee: No income tax (Hall Tax eliminated 2022). Tennessee's combined sales tax rate is among the highest nationally (~9.25–10%). Property tax in Tennessee: approximately 0.64% effective (similar to Arkansas). For wage earners, Tennessee is clearly lower on income tax but roughly equivalent on property and sales tax.
• Texas: No income tax. Texas property tax: approximately 1.6% effective — significantly higher than Arkansas. For a $300,000 home: Texas costs approximately $4,800/year in property tax vs Arkansas approximately $1,860. For an Arkansas resident earning $150,000, the income tax savings from moving to Texas: approximately $6,600/year (4.4%); the property tax cost: approximately $2,940 more per year. Net annual savings from Arkansas to Texas: approximately $3,660 at $150K income on $300K home.

Arkansas Capital Gains Treatment

Arkansas taxes capital gains at regular income tax rates — same as ordinary income. There is no preferential rate for long-term capital gains at the Arkansas level. The federal capital gains preference (0%/15%/20%) still applies; Arkansas just adds its regular rate on top. For a retiree recognizing a large capital gain from a real estate sale: the Arkansas component at 4.4% applies. Moving to Tennessee or Texas before a major capital gain saves the full 4.4%.

Arkansas Residency Exit Rules

Arkansas uses standard domicile-based residency:

Arkansas Residency

Arkansas defines a resident as someone domiciled in Arkansas or someone who maintains a permanent place of abode in Arkansas for a complete taxable year. Arkansas does not have a specific published day-count threshold beyond domicile — the state uses common law domicile principles. To exit Arkansas residency: establish domicile in the new state (driver's license, voter registration, vehicle registration, estate documents). Arkansas does not have a reputation for aggressive post-departure audits.

Arkansas Sales Tax: Regional Context

Arkansas has a 6.5% state sales tax, with local taxes adding to combined rates of 8–12% in some areas (Fayetteville combined ~8.5%; Little Rock ~8.625%). Arkansas taxes groceries at a reduced 0.125% state rate (food and food ingredients) — effectively near zero at the state level for groceries, with local taxes applying. This reduced grocery rate is a meaningful benefit for families. The overall sales tax burden in Arkansas (excluding groceries) is above the national average but comparable to Tennessee and higher-tax Southern neighbors.