Arkansas Withholding laws & compensation compliance analysis

Arkansas Withholding: What you need to know

Arkansas law requires withholding of state income taxes from the wages of residents and nonresidents for services performed for Arkansas employers. Nonresidents are subject to the tax only on wages paid for services performed within the state. Special border city exemptions apply for residents of Texarkana, Arkansas, and Texarkana, Texas.
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The amount to be withheld may be determined from withholding tables or a computer formula provided by the Department of Finance and Administration.
Taxes must be withheld on “wages,” which include all cash and noncash payments for services performed by an employee. Vacation allowances, sick-leave pay, back pay, supplemental unemployment benefits, retroactive wage increases, and reported tips of more than $20 per month are subject to withholding. Arkansas follows federal rules on the tax treatment of benefits.
Exclusions. Payments for the following services are exempt from withholding:
• Domestic service in a private home, college club, or college fraternity or sorority
• Agricultural labor for an employer that has fewer than four employees
• Service not in the course of the employer's trade or business where compensation is less than $150 per quarter
• Religious service performed by ministers or members of religious orders
Employees. Employers must obtain an exemption certificate, Form AR-4EC or federal Form W-4, from each employee. Employers that use Form W-4 are responsible for modifying the form to state requirements because Arkansas does not allow exemptions for old age, deafness, or blindness. Employees with no federal tax liability in either the current or preceding year are exempt from Arkansas withholding and should file Form AR-4ED ...

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