Arkansas Remote Work Tax Reform Modernization
Arkansas improved its state taxA Tax is a mandatory payment collected by local, State, and National governments from individuals and businesses to cover costs of general government goods, services, and activities.
The state has made progress by consolidating its once convoluted and overly complex individual income tax. The state has made significant progress in consolidating its convoluted and complex individual tax. An individual income tax is levied against the wages, salaries or other types of income that an individual or household earns. The U.S. has a progressive income-tax system where rates increase as income increases. The Federal Income Tax was created in 1913, with the ratification 16th Amendment. Individual income taxes, which are only 100 years old but are the biggest source of tax revenue for the United States, have been around since 1913.
structure. It has also improved its corporate tax. The federal and state governments levy a corporate income tax on business profits. Many companies are exempt from the CIT, as they are taxed under the individual income taxes.
rate lowers the top marginal corporate tax rate along with the top marginal personal income tax rate. These changes are only applicable to Arkansas residents and nonresidents that meet certain guidelines for remitting personal income tax in the Natural State. Despite its strong prior reforms, Arkansas still ranks near the bottom in how it handles non-resident income tax filing and withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. The amount of income earned is based on the taxpayer’s filing situation, the number and type of allowances claimed by the employee, as well as any additional amount requested.
thresholds. Following seismic changes in how employers obtain talent, Arkansas stands out as a state in need of reform to help employers attract the most qualified candidates and relieve the tax filing and withholding requirements for workers who may spend as little as one working day in the Natural State.
To address this issue, Arkansas Representative David Ray (R) has introduced HB 1116, the Remote and Mobile Work Modernization and Competitiveness Act.
The bill proposes three significant adjustments to how Arkansas taxes nonresident workers:
- Reciprocity Agreements. The bill would allow Arkansas to enter into reciprocity agreements with other states, under which Arkansas and other states mutually agree not to tax each other’s residents for work performed in their states. This would simplify the tax compliance and administration of such workers by requiring them to pay only income tax in the state where they reside, without any obligations for taxes in non-resident states offset by credits for tax paid to those states. This measure would add Arkansas to the list of 17 states that already have such agreements.
- Income Exemption Threshold. The bill would exempt the first $2,500 of nonresident workers’ Arkansas-sourced income from taxation. This is a step in the right direction, avoiding situations where even a single day in the state can trigger tax liability, though it falls below the national median threshold, and a days-based threshold would offer greater simplicity.
- Withholding Exemption for Short-Term Work The bill combines the income threshold with an employer withholding exemption for remote workers who spend fewer than 15 days working in Arkansas. This is beneficial to both employers and employees. Most states that have residency-based exemptions withhold withholding after 30 days. Increasing Arkansas’s threshold to 30 days (ideally for both filing and withholding purposes) would align the bill with national norms.
Enhancing these provisions would simplify Arkansas’s state tax code, align it with national trends, and reduce compliance costs for remote employees who may spend only a minimal amount of time working in the state. But even in its current form, the bill represents a marked improvement over existing policy, under which everyone who works for even one day in the state is expected to file and remit taxes–an obligation where compliance costs can far outstrip the actual amount of taxes owed.
Compliance with and enforcement of nonresident employee filing is already low due to the complexity involved. This bill would ease some of the compliance challenges and simplify life for tax-conscious workers. Arkansas is currently ranked 39th for the individual income tax component. The Remote and Mobile Work Modernization and Competitiveness Act will help modernize Arkansas’s tax code. The bill would make Arkansas more attractive to employers and employees by streamlining and simplifying tax burdens on remote and nonresident workers. Adjusting the bill to align with national averages–including raising the income exemption threshold and increasing the withholding exemption period–would further enhance its effectiveness and impact, allowing Arkansas to embrace modernization, attract top talent, and position itself as a more competitive player in the evolving landscape of remote work.
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