Arkansas lawmakers recently passed a law reducing state income taxes for individuals and corporations.
Beginning this year and through 2025, personal income tax rates will decrease, as will corporate tax rates if certain economic conditions are met. The legislation of the December special session also:
– Modification of certain tax brackets.
– Combination of two tax tables for low and middle income.
– Increase in the standard tax deduction by adjusting income.
– A tax credit has been granted to certain individuals.
How will my individual tax payable change?
The impact of the 2021 legislation on you will depend on how much your household earns in any given year and how much of that income is taxable.
Arkansas’ top tax rate is expected to drop from 5.9% to 4.9% by 2025 if certain conditions are met. This change will benefit everyone with taxable income of $ 39,700 and over, but it will have a greater benefit for those with income over $ 84,500. Those with taxable income between $ 84,500 and $ 90,600 will also receive a tax credit of up to $ 610 in 2022 and $ 439 in 2025 to accommodate changes in tax brackets.
The combination of the low and middle income tax tables means that people who previously used the tax table for those with taxable incomes between $ 22,000 and $ 79,300 will see their tax rate decrease slightly.
In addition, those with low taxable income will receive a tax credit of up to $ 60 if they file their returns on time. The maximum credit of $ 60 will be granted to individuals with taxable income of $ 23,600 or less.
A tax credit will also be granted to people with income up to $ 24,700 on a sliding scale, those with taxable income between $ 24.01 and $ 24,700 will receive a credit of $ 5.
Another element of this legislation that will reduce nominal taxable income is the indexation of the standard deduction to inflation using the consumer price index.
How will the corporate tax evolve?
Corporate tax rates will be gradually lowered from the current 6.2% to 5.3% in 2025, provided government revenue targets are met.
Who will benefit?
The Department of Finance and Administration estimates that this tax cut will cost the state about $ 500 million in annual revenue after the cuts are fully implemented in 2026. The Arkansas Economic Development Commission suggests that this tax cut “puts money in the pockets of every Arkansas taxpayer.” And that the $ 60 tax credit will eliminate income taxes from more than 100,000 people in the state.
The Institute on Taxation and Economic Policy (ITEP) analysis of these tax cuts suggests that the state’s wealthiest taxpayers will benefit the most from the combined personal income tax cuts and companies. The ITEP, a non-profit, non-profit organization in Washington DC, estimates that about 70% of tax cuts go to those in the top 20%.
The ITEP also estimates that nearly 75% of the corporate tax cut will go to the top 20% and that the vast majority of shareholders who benefit from the tax cut do not live in Arkansas.