Arkansas State Payroll Tax Rates and Withholding Rules

Arkansas payroll tax rates for 2025 break into three employer obligations: state income tax withheld from wages at 0% to 3.9% on a progressive schedule, state unemployment insurance paid by the employer on the first $7,000 of each worker’s annual wages (2.0% for new employers), and workers’ compensation insurance required for most businesses with three or more employees. Income tax withholding is remitted monthly, unemployment tax quarterly, and late payments trigger penalties of 5% per month up to 35% of the balance owed.

Income Tax Withholding Brackets

Arkansas splits its withholding tables into two versions based on the employee’s total net income. Which table applies is determined by information the employee provides on Form AR4EC, the state Employee’s Withholding Exemption Certificate.¹ If a new hire doesn’t submit the form, the employer withholds at the default rate with no exemptions.

Net Income of $92,300 or Less

Most employees fall under this five-bracket schedule, which shields the first $5,499 of income from state tax entirely:²

$0 to $5,499: 0%
$5,500 to $10,899: 2.0%
$10,900 to $15,599: 3.0%
$15,600 to $25,699: 3.4%
$25,700 to $92,300: 3.9%

Net Income Above $92,300

Higher earners use a compressed two-bracket table with no zero-percent floor:²

$0 to $4,600: 2.0%
$4,601 and above: 3.9%

The top marginal rate of 3.9% is set by Arkansas Code 26-51-201.³ The Department of Finance and Administration republishes withholding guides whenever the legislature adjusts rates, and employers should always be running the current version. Using an outdated table after a rate cut leads to over-withholding, which the employee then has to sort out at tax time.⁴

Bonuses, Commissions, and Other Supplemental Wages

Supplemental wages can be withheld at a flat 3.9% rather than run through the bracket tables. This matches the current top marginal rate and simplifies payroll for one-off payments where projecting annual income doesn’t make sense. Employers who prefer can instead aggregate the supplemental payment with the employee’s regular wages for the period and withhold using the standard tables.

Unemployment Insurance Tax

Unemployment insurance is an employer-only cost. Arkansas law prohibits deducting any portion of the contribution from employee wages.⁵ The tax applies only to the first $7,000 of each employee’s wages each calendar year; once a worker crosses that threshold, no further unemployment tax is owed for that individual for the rest of the year.

New employers pay 2.0%.⁶ That rate holds until the business builds enough claims history for the Division of Workforce Services to assign an experience-based rate, which then moves up or down depending on how many former employees have filed claims. Stable workforces with few claims get lower rates. At the 2.0% new-employer rate, the maximum annual cost per employee is $140.

Workers’ Compensation Insurance

Most Arkansas employers with three or more workers must carry workers’ compensation. The threshold is lower for construction: building or repair work requires coverage at two employees, and contractors or subcontractors need it at one.⁷ Full-time and part-time employees both count toward the threshold.

Exempt categories include domestic servants in private homes, agricultural farm laborers, employees of nonprofit religious and charitable organizations, and licensed real estate agents treated as independent contractors. State and local government workers are covered under separate statutes.⁷

Premiums aren’t set by the state. Rates vary by industry classification code, job risk level, and the business’s own claims history, and coverage is purchased through private insurers or the state’s assigned-risk pool. Operating without required coverage can bring civil fines, stop-work orders from the Arkansas Workers’ Compensation Commission, and personal liability for injury costs.

Filing Schedules and Deadlines

Income Tax Withholding

Every new employer starts on a monthly filing schedule. Returns and full payment are due by the 15th of the following month.⁸ Arkansas no longer offers a quarterly option for withholding.

If total state income tax withheld during the prior year was $199 or less, the account can be shifted to annual filing by either the employer or the Department of Finance and Administration. Annual returns are due by January 31 for the preceding year.⁸ Payments are submitted through the Arkansas Taxpayer Access Point.⁹

Unemployment Insurance

UI contributions and wage reports are filed quarterly through the Division of Workforce Services employer portal.¹⁰ Each report is due during the month after the quarter closes:¹¹

First quarter (January–March): due in April
Second quarter (April–June): due in July
Third quarter (July–September): due in October
Fourth quarter (October–December): due in January of the following year

Penalties for Late or Missing Payments

Failure to file a withholding return on time triggers a penalty of 5% of the tax owed for the first month, plus another 5% for each additional month the return stays delinquent, capped at 35%.¹² The same 5%-per-month structure, with the same 35% cap, applies to failure to pay the amount shown on a return.

If the Department of Finance and Administration finds that a deficiency resulted from negligence or intentional disregard of the rules, it adds a flat 10% penalty on top of the deficiency plus interest. Fraud triggers a 50% penalty on the deficiency.¹² Interest accrues daily on any unpaid balance, so an underpayment grows meaningfully if left unresolved for several months. Filing on time with an estimated payment is cheaper than skipping a filing.

1
Arkansas Department of Finance and Administration. Arkansas Employee’s Withholding Exemption Certificate
2
Arkansas Economic Development Commission. Personal Income Tax Rates in Arkansas
3
Justia Law. Arkansas Code 26-51-201 – Individuals, Trusts, and Estates
4
Arkansas Department of Finance and Administration. Withholding Tax Forms and Instructions
5
Justia Law. Arkansas Code 11-10-701 – Accrual and Payment of Contributions
6
Arkansas Division of Workforce Services. UI Employer Services
7
Justia Law. Arkansas Code 11-9-102 – Definitions
8
Justia Regulations. Filing Schedule for Employer’s Withholding Returns
9
Arkansas.gov. Arkansas Taxpayer Access Point (ATAP)
10
Arkansas Division of Workforce Services. Arkansas DWS Online Unemployment Insurance Employer Services
11
Arkansas Division of Workforce Services. Workforce Services Regulations
12
Justia Law. Arkansas Code 26-18-208 – Additional Penalties and Tax