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
Employers must obtain an exemption certificate, Form AR-4EC or federal Form W-4, from each employee. Employees with no federal tax liability in either the current or preceding year are exempt from Arkansas withholding and should file Form AR-4ECSP (Special) with their employer.