Recently enacted legislation will reduce the highest Arkansas state income tax rate from the current 6.9% to 6.6% in 2020 and to 5.9% in 2021. (SB 211/Act 182, the Tax Competitiveness and Relief Act of 2019.)

According to the governor's news release, the intent of the legislation is to bring the state more into line with neighboring states' income tax rates. SB 211 is the third piece of legislation in the governor's plan to reform Arkansas's tax code. Legislation enacted in 2015 and 2017 also included income tax cuts.

"The lowered tax rate puts us in the same bracket with most of our neighboring states, which strengthens our sales pitch to CEOs who are considering expanding into other states," Governor Hutchinson said. "As we attract more business, we will create more jobs, and higher-paying jobs, which will lead to higher salaries and an improved quality of life for all Arkansans. Combined with my administration's first two income-tax cuts, the largest in state history, this reduction enhances Arkansas's reputation as one of the most business-friendly states in the region."

SB 211 also simplifies the state's highest income tax schedule by condensing the income tax brackets within the schedule from the current six rates, to four rates in 2020 and three rates in 2021.

Ernst & Young LLP insights

In light of the future decrease to the top income tax rate, employers should expect to see revised withholding tables/formula issued by the Arkansas Department of Finance & Administration for calendar years 2020–2021. According to a Department withholding tax representative, no revision is expected for 2019. (Telephone conversation, February 22, 2019.)

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