23 September 2026 Arkansas does not uniformly adopt the OBBBA’s compensation and benefits provisions The One Big Beautiful Bill Act (OBBBA) made numerous changes to federal tax provisions affecting employee compensation, fringe benefits, payroll-related exclusions, and other employer-provided benefits. These changes altered the federal income tax treatment of a variety of compensation and benefits items and, in some cases, created new or expanded tax-favored provisions. (See Tax Alert 2025-1476 for more information on the compensation and benefits provisions of the OBBBA.) Because state personal income tax conformity rules vary, the extent to which these federal changes apply for state income tax purposes depends on each state's conformity structure and legislative adoption of the affected Internal Revenue Code (IRC) provisions. Arkansas does not use a single rolling conformity date for all personal income tax provisions. Instead, Arkansas law selectively adopts specific IRC sections, often as of a stated historical date. As a result, changes made by the OBBBA do not automatically apply for Arkansas personal income tax purposes. The chart below summarizes selected OBBBA compensation and benefits provisions and the corresponding Arkansas personal income tax treatment under current Arkansas law. Arkansas personal income tax conformity with the OBBBA—compensation and benefits provisions
Internal Revenue Code Section | Description | Effective date | Does Arkansas conform with federal law? | 132(f)(8) | Bicycle commuting benefits. Makes permanent the elimination of the exclusion from gross income for bicycle commuting benefits of up to $20 per month. | January 1, 2026 | No. Arkansas law follows the IRC in effect before the 2017 Tax Cuts and Jobs Act; therefore, commuting benefits up to $20 per month are excluded from Arkansas taxable income. (Ark. Code Section 26-51-404(b)(19).) | 132(f) | Transportation fringe benefits. Allows a monthly exclusion from gross income for parking benefits of $340 per month and $340 per month for both commuter highway vehicle benefits and transit passes. The monthly limit is indexed each year for inflation. | January 1, 2026 | Yes. (Ark. Code Section 26-51-404(b)(19).) | 217(k), 132(g)(2) | Moving expenses. Makes permanent the elimination of the deduction for moving expenses except for members of the Armed Forces and certain members of the intelligence community. | January 1, 2026 | No. Moving expense reimbursements are excluded from Arkansas taxable income according to the provisions that applied prior to the elimination of the deduction under the 2017 Tax Cuts and Jobs Act. (Ark. Code Section 26-51-404(b)(19), Ark Form AR1000ADJ; AR3903; SB 412.) | 224 | No tax on tips. Creates deduction from gross taxable income for qualified tips up to $25,000. | January 1, 2025
(sunset 2028) | No. There is no exclusion for qualified tips under Arkansas tax law. (Ark. Code Section 26-51-404.) | 225 | No tax on overtime. Creates deduction from gross taxable income for qualified overtime pay. | January 1, 2025
(sunset 2028) | No. There is no exclusion for qualified overtime pay under Arkansas tax law (Ark. Code Section 26-51-404.) | 128, 139J | Employer contribution to Trump Accounts. Excludes from gross income employer contributions to an employee’s dependent Trump account up to $2,500 per year. | January 1, 2026 | No. Arkansas law has not yet adopted the exclusions under IRC 128 or 139J for contributions to Trump accounts. (Ark. Code Section 26-51-404.) | 129(a)(2)(A) | Dependent care assistance. Increases the maximum exclusion from taxable wages for dependent care assistance from $5,000 to $7,500. | January 1, 2026 | No. Arkansas law adopts IRC Section 129 as in effect January 1, 2005. Accordingly, Arkansas law does not adopt the OBBBA increase in the dependent-care assistance exclusion from $5,000 to $7,500. (Ark. Code § 26-51-404(b)(12).) | 127(c)(1)(B) | Educational assistance. Makes permanent that employer payment of a student loan is excluded from income as part of qualified educational assistance and subjects the maximum exclusion of $5,250 to annual inflation adjustments. | January 1, 2026, for student loans; January 1, 2027, for inflation adjustments to maximum exclusion | No. Arkansas law adopts IRC Section 127 in effective January 1, 2017; accordingly, employer payments of the principal and interest for an employee’s qualified education loan are not excluded from Arkansas taxable income. Also, Arkansas tax law does not adopt the annual inflation adjustment to the maximum educational assistance exclusion starting in 2027. (Ark. Code § 26-51-404(b)(20).) |
Ernst & Young LLP insights Employers should confirm that system taxability configurations comply with the differences in taxable wages under federal and Arkansas tax code and monitor developments closely in the future. Employers should also be aware that other states may conform differently to the federal IRC, making this an essential state research activity in 2026 and future years. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Workforce Tax Services - Employment Tax Advisory Services EY Personal Finance | | Published by NTD’s Tax Technical Knowledge Services group; Lori E.Ruppert, legal editor |
Document ID: 2026-2029 |
