Arkansas Exempt Income

EXEMPT FROM INCOME TAX NOTE:

List exempt income on AR4, Part III. (You do not need to list exclusion amounts from numbers 11-13.)

1. Military Pension received as a member of the uniformed services.

2. Money you received from a life insurance policy because of the death of the person who was insured is exempt from tax. NOTE: You must include as taxable income any interest payments made to you from the insurer (the insurance company that issued the policy).

3. Money you received from life insurance, an endowment, or a private annuity contract for which you paid the premiums is allowed cost recovery pursuant to Internal Revenue Code §72.

4. Amounts you received as child support payments are exempt from tax.

5. Gifts, inheritances, bequests, or devises are exempt from tax.

6. Scholarships, fellowships, and grants are taxed pursuant to Internal Revenue Code §117. (Stipends are fully taxable.) For additional information on scholarships, fellowships, and grants see instructions for Line 22 on Page 13.

7. Interest you received from direct United States obligations, its possessions, the State of Arkansas, or any political subdivision of the State of Arkansas is exempt from tax. (Interest received on tax refunds is not exempt income, because it did not result from a debt issued by the United States, the State of Arkansas, or any political subdivision of the State of Arkansas.) Interest from government securities paid to individuals through a mutual fund is exempt from tax.

8. Social Security benefits, VA benefits, Workers’ Compensation, Railroad Retirement benefits and related supplemental benefits are exempt from tax. Railroad Retirement Benefits exempt from income tax include tier I, tier II, vested dual benefits (VDB), and supplemental annuity payments reported on Form(s) RRB-1099-R and/or RRB-1099. Private pensions reported on form 1099-R from railroad companies are not considered exempt Railroad Retirement Benefits.

9. The rental value of a home or the housing allowance paid to a duly ordained or licensed minister of a recognized church is exempt to the extent that it was used to rent or provide a home. The rental value of a home furnished to a minister includes utilities furnished to the minister as part of compensation. The housing allowance paid to a minister includes an allowance for utilities paid to the minister as part of compensation to the extent it was used to furnish utilities in the home.

10. Disability income MAY BE exempt from tax pursuant to Internal Revenue Code §104.

11. Beginning with tax year 2014, U.S. active duty military compensation is exempt from tax. To claim the exemption, you must file a return and report all of the income you received during the year.

12. If you received income from an employer sponsored retirement plan, including disability retirement, that is not exempt under IRC §104, the first $6,000 is exempt from tax. If you contributed after-tax dollars to your plan, you are allowed to recover your cost (investment) in your retirement plan in accordance with Internal Revenue Code §72. Then the first $6,000 of the balance is exempt from tax.

13. If you received a traditional IRA distribution after reaching age fifty-nine and one-half (59 1/2), the first $6,000 is exempt from tax. Your traditional IRA distribution may be adjusted for nondeductible IRA contributions, if any, by completing Federal Form 8606 and attaching it to your Arkansas return. Premature distributions made on account of the participant’s death or disability also qualify for the exemption. All other premature distributions or early withdrawals including, but not limited to, those taken for medical expenses, higher education expenses or a first-time home purchase do not qualify for the exemption.

A surviving spouse qualifies for the exemption; however he/she is limited to a single $6,000 exemption.

NOTE: Total exemptions from all plans described under 12 and 13 cannot exceed $6,000 per taxpayer, not including recovery of cost.

14. Beginning with tax year 2017, income received by a taxpayer under the Community Match Rural Physician Recruitment Program is exempt from income tax.