Arkansas Income Tax Rates

In her 2026 State of the State Address, Gov. Sarah Huckabee Sanders (R) announced she would call a special session after the passage of Arkansas’s state budget to pursue another round of income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. cuts—her fourth in four years.

When Sanders took office, Arkansas’s top individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source rate was 4.9 percent, and its top corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate was 5.3 percent. After three rounds of cuts—each funded by revenue surpluses—the rates fell to 3.9 percent and 4.3 percent, respectively.

After signing the state’s budget, Gov. Sanders officially called for a special session, citing the state’s “financial stability, increased economic growth, healthy reserve accounts, and conservative spending policies.”

On May 4, 2026, lawmakers convened for a special session to reduce the state’s top individual and corporate income tax rates, once again using the state’s current revenue surplus. On May 6th, HB 1001 and SB 1 were passed and signed into law, reducing the state’s top individual income tax rate to 3.7 percent, retroactive to January 1, 2026, and reducing the state’s top corporate income tax rate to 4.1 percent, effective beginning January 1, 2027.

Sanders has signaled these cuts are part of a long-term goal, and that she would like to eventually phase out the state’s individual income tax, acknowledging that such a policy would strengthen Arkansas’s economic competitiveness.

Arkansas Faces Stiff Tax Competition Regionally

The desire to cut taxes started even before Gov. Sanders took office. Since 2013, Arkansas has enacted multiple rounds of income tax reductions, bringing the top individual rate down from 7 percent and the top corporate rate down from 6.5 percent.

It’s no coincidence that policymakers in the Razorback State have been laser-focused on tax competition. To attract business investment and higher-paying jobs for workers, Arkansas must execute a pro-growth tax strategy to compete with neighboring states.

Tennessee and Texas levy no individual income tax. Three other neighbors—Mississippi, Missouri, and Oklahoma—all have single-rate or top marginal corporate income tax rates of only 4 percent. While Texas has no corporate income tax, it does impose a gross receipts taxGross receipts taxes are applied to a company’s gross sales, without deductions for a firm’s business expenses, like compensation, costs of goods sold, and overhead costs. Unlike a sales tax, a gross receipts tax is assessed on businesses and applies to transactions at every stage of the production process, leading to tax pyramiding., an economically harmful tax applied to a company’s gross sales, without deductions for a firm’s business expenses.

Table 1. Income Tax Rates: Arkansas and Neighboring States

Tax Year 2026

Note: Arkansas’s new individual rate is retroactive to January 1, 2026, and the top corporate rate decreases to 4.1 percent on January 1, 2027. Tennessee has a gross receipts tax in addition to its corporate income tax. Texas does not have a corporate income tax but imposes a gross receipts tax.
Source: Tax Foundation; state statutes.

State Income Tax Reductions Continue in 2026

Since 2021, 26 states have enacted individual income tax rate reductions (including 23 reductions to top marginal rates), and 13 states have enacted corporate income tax rate reductions.

Although some states have proposed taxes on high earners and high-net-worth individuals, 2026 has demonstrated that the trend to pursue further income tax rate reductions continues. Arkansas and four other states that have previously cut taxes (Georgia, South Carolina, Utah, and West Virginia) once again enacted tax cuts in 2026. Additionally, Missouri legislation will ask 2026 voters to decide whether to eliminate the state’s individual income tax.

Table 2. State Income Tax Cuts Enacted in 2026

As of May 11, 2026

Note: A Missouri ballot question would amend the state constitution and reduce income tax rates and eventually phase out the income tax, contingent upon voter approval. Source: Tax Foundation; state statutes.

Migration and Economic Growth

Migration trends reflect that taxpayers are choosing to relocate to more tax-friendly environments, and states like Arkansas are wise to note these trends and prioritize making their tax codes more competitive.

While tax friendliness is not the sole determinant of where one chooses to live or start a business, analysis of IRS migration data reveals that states that have experienced a net gain of income tax filers from interstate migration are states with more competitive tax structures and lower overall costs of living.

The most recent IRS migration data for 2022-2023 show that the top five states with the greatest net gains in income tax filers attributable to domestic interstate migration were Texas, Florida, North Carolina, South Carolina, and Tennessee. These states either have no individual income tax or have cut income tax rates in recent years. In contrast are states with the greatest net losses of income tax filers: California, New York, Illinois, New Jersey, and Massachusetts. While Illinois has a 4.95 percent flat rate individual income tax, it has a high corporate income tax rate of 9.50 percent. The remaining states all have graduated-rate income tax structures with high top marginal income tax rates on high earners and have raised their top marginal income tax rates in recent years.

Meanwhile, Arkansas ranked 11th nationally for net population growth attributable to inbound interstate moves, adding 5,269 tax filers and $450 million in adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income.
For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods for the most recent available year of IRS migration data. An analysis of the data beginning with 2015-2016 reveals that Arkansas added 21,429 tax filers and $1.54 billion in adjusted gross income in the 10-year period since the initial 2013 tax cuts, reflecting a broadening of the state’s tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. that should help facilitate continued income tax rate reductions in the future.

Looking Forward

While Arkansas has been fortunate to have had several years of revenue surpluses to fund incremental rate reductions, there is always the potential for unforeseen economic downturns.

In the future, Arkansas could benefit from exploring the use of revenue triggers as part of a continued income tax reduction strategy. Well-designed revenue triggers help ensure that revenue surpluses reflect real economic growth, providing guardrails so that reductions are sustainable and can withstand changes in economic conditions.

Arkansans have reason to be encouraged. State policymakers have demonstrated a willingness to compete for workers and business investment in the Razorback State, and they have signaled a commitment to continue doing so in the future.