2021 What’s New
SPECIAL INFORMATION FOR TAX YEAR 2021
E-file requirement for tax practitioners (Act 143 of 2021)
Requires that a tax practitioner who files a taxpayer’s federal income tax return electronically must also file the taxpayer’s Arkansas state income tax return electronically.
Unemployment compensation benefits are exempt from income tax for 2020 and 2021 (Act 154 of 2021)
Exempts unemployment compensation benefits paid from federal unemployment funds and unemployment insurance benefits received from unemployment compensation paid under Title IV of the Social Security Act during calendar years 2020 and 2021.
COVID-19 relief programs (Act 248 of 2021)
Amends the Income Tax Act of 1929 to exclude income that a taxpayer received through certain federal COVID-19 relief programs, including loan forgiveness under the Paycheck Protection Program (PPP), Small Business Administration (SBA) grants under the Economic Injury Disaster Loan (EIDL) program, and payments received under the Coronavirus Food Assistance Program (CFAP), from the definition of gross income. Act 248 also permits the taxpayer to deduct otherwise allowable expenses incurred using forgiven PPP loans, EIDL grant funds, and CFAP funds. Act 248 is effective retroactively to tax years beginning on and after January 1, 2019.
Arkansas Public Employees Retirement System added as a claimant agency (Act 281 of 2021)
Amends § 26-36-303 to add the Arkansas Public Employees Retirement System (APERS) as a claimant agency eligible to offset a taxpayer’s state income tax refund to satisfy a debt. It also amends the definition of “debt” in Ark. Code Ann. § 26-36-303 to include an overpayment of a monthly benefit or lump sum distribution from APERS.
State Insurance Department and Self-Insured Fidelity Bond Programs added as claimant agencies (Act 373 of 2021)
Amends Ark. Code Ann. § 26-36-303 to add the State Insurance Department and the Self-Insured Fidelity Bond Program as claimant agencies eligible to offset a taxpayer’s state income tax refund to satisfy a debt.
Extension of extended due date of income tax returns (Act 629 of 2021)
Extends the extended filing deadline for taxpayers to file their Arkansas income tax returns an additional month beyond the corresponding federal deadline.
Changes the taxation of ABLE distributions and allows excess contributions to be carried forward (Act 882 of 2021)
Provides that only the earnings portion of a nonqualified distribution from an ABLE account is subject to income tax by the designated beneficiary of the savings account. Earnings included in a refund are subject to income tax. The act also enables a taxpayer to carry forward contributions to an account in excess of $5,000 for four consecutive tax years following the tax year in which the taxpayer made the contribution. The act also allows a state employee to make tax-deferred contributions from the employee’s salary to an ABLE account.
Credit for a stillborn child (Act 935 of 2021)
Creates an individual income tax credit for a stillborn child. The act provides the credit against the taxpayer’s income tax liability in the amount of five hundred dollars ($500) for a stillborn child for whom a certificate of birth resulting in stillbirth has been issued under Ark. Code Ann. § 20-18-410 and who would have been a dependent of the taxpayer during the taxable year.
Arkansas Tax-Deferred Tuition Savings Program Act is changed to Arkansas Brighter Future Plan Act and adoption of certain Internal Revenue Codes (Act 966 of 2021)
Act 966 changes the name of the “Arkansas Tax-Deferred Tuition Savings Program Act” to the “Arkansas Brighter Future Plan Act.” Current law adopts 26 U.S.C. § 529 and portions of 26 U.S.C. § 529A as they existed on January 1, 2018. Act 966 updates references to those sections by adopting them as they existed on January 1, 2020. The effect of the updated references is the expansion of the phrase “qualified higher education expenses” to include: (1) fees, books, supplies, and equipment required for participation in an apprenticeship program; and (2) up to $10,000 withdrawn from the account to pay principal and interest on certain education loans. Act 966 allows contributions to an account meeting the requirements of 26 U.S.C. § 529, as it existed on January 1, 2020, to be deducted from a taxpayer’s adjusted gross income for tax years beginning on and after January 1, 2021.
Amended teacher’s qualified classroom expense (Act 971 of 2021)
Increases the deduction amount to $500 per taxpayer or $1,000 if both taxpayers are teachers and married filing jointly.
Nonresident income (Act 1019 of 2021)
Nonresidents who earn income from Arkansas sources will only pay tax on the income that the nonresident earns while physically present in Arkansas when performing the work.
Act 1019 also amends the definition of “employer” under the Arkansas Income Tax Withholding Act of 1965 to include a person doing business in or deriving income from sources outside this state who has control of the payment of wages to an individual for services performed within this state.
Reduction in DFA’s offset fee (Act 1065 of 2021)
Reduces DFA’s collection assistance fee for income tax refund offsets from ten percent of the proceeds from the offset to five percent of the proceeds from the offset when the claimant agency is a circuit court, county court, district court, city court, or housing authority.
Tax competitiveness and relief (Act 182 of 2019)
Marginal income tax rates for 2021 have been amended and the top rate will be reduced to 5.9%.
For changes to business incentives and tax credits see https://www.dfa.arkansas.gov/excise-tax/tax-credits-special-refunds