If you are an Arkansas resident serving on active duty, Arkansas does not tax a single dollar of your military pay. Since tax year 2014 the state has exempted 100 percent of active duty service pay and allowances from its income tax, with no cap. For an E-5, that is roughly $1,000 a year that stays in your pocket instead of going to Little Rock, and claiming it takes one line on your state return.
What it is
Arkansas law, Ark. Code Ann. § 26-51-306, exempts "the service pay or allowance received by an active duty member of the armed forces" from Arkansas income tax. Act 1408 of 2013 created the full exemption, effective for tax years beginning January 1, 2014. Before that, only the first $9,000 of service pay was exempt.
The statute defines "armed forces" broadly: Army, Navy, Air Force, Marine Corps, Coast Guard, the National Guard, and the reserve components of each branch. The Arkansas Department of Finance and Administration (DFA) instructions for the 2025 return put it plainly: "Active duty includes all armed forces members, including the National Guard and Reserve Units. You must file to claim the exemption."
This is separate from Arkansas's military retirement exemption. The state has also exempted 100 percent of military retirement pay since tax year 2018 under Act 141 of 2017, so your pay is protected while you serve and your pension is protected after.
What it's worth
Arkansas has been cutting its income tax rates almost every year, so the dollar value of the exemption shrinks a little as rates fall, but it is still real money. The top rate was 3.9 percent for tax year 2025 and dropped to 3.7 percent for tax year 2026, retroactive to January 1, 2026, under legislation signed in May 2026.
Take an E-5 earning about $40,000 in base pay. Without the exemption, DFA's 2025 regular tax table puts the Arkansas tax on that pay at roughly $1,000 a year after the standard deduction. With the exemption, the state tax on that income is zero.
| Tax year | Top Arkansas rate |
|---|---|
| 2025 | 3.9% |
| 2026 | 3.7%, retroactive to January 1, 2026 |
Your exact savings depend on your pay and filing status because Arkansas uses graduated brackets below the top rate, and the 2026 tables will run slightly lower than 2025's after the rate cut. Higher pay grades save more, and the exemption also covers allowances, though BAH and BAS are already excluded from federal taxable income so the practical savings come from base pay and other taxable compensation. Verify the current rate for the year you are filing with the DFA Individual Income Tax section.
Who qualifies (and who doesn't)
You qualify if both of these are true:
- You are an Arkansas resident, or Arkansas is your home of record. Under federal law your state of legal residence does not change just because the military stations you somewhere else, so Arkansas residents stationed out of state still file an Arkansas return and still get the exemption.
- You received service pay as an active duty member of the armed forces. That includes Guard and Reserve members serving on active duty orders, and the statute's definition of active duty explicitly includes full-time training duty, annual training duty, and attendance at a designated service school.
Who does not get the full exemption:
- Nonresidents stationed in Arkansas. Arkansas does not tax your military pay either, but that is federal law protecting your home state's claim, not this exemption. DFA has a separate AR-NRMILITARY form for that situation.
- Dual-status military technicians, who are excluded from the statute's definition of "armed forces" as amended in 2019.
- Military retirees, for this particular benefit. Your retirement pay is covered by the separate retirement exemption instead.
- Income from other sources. The statute is explicit that civilian wages, business income, and other non-military income remain fully taxable.
The drill pay question. The 100 percent exemption is written for active duty pay, and the statute's active duty definition lists full-time duty, annual training, and military schools. It does not list inactive duty training, which is what a normal drill weekend is. The statute separately keeps an older exemption for the first $9,000 of service pay for members of the armed services generally, and taxes service pay above the exempt amounts. DFA's own instructions state the exemption includes National Guard and Reserve members without distinguishing duty status. Because the statute and the instructions read differently on this edge, do not assume your weekend drill pay is automatically 100 percent exempt. Confirm how to report it with the DFA Individual Income Tax section at (501) 682-1100 before you file.
How to claim it
The exemption is not automatic. In DFA's words, you must file to claim it. Here is the process for a full-year Arkansas resident, based on the 2025 AR1000F and its instructions:
- File an Arkansas return, Form AR1000F, from the DFA 2025 forms page. Serving out of state does not excuse you from filing if Arkansas is your home of record.
- Report ordinary wages on line 8 as usual.
- Enter your U.S. military compensation on line 9. The instructions direct you to enter the gross amount in the space provided and leave column A blank, which is what keeps it out of your taxable income. Attach your W-2s.
- Check one detail before choosing a tax table: if you use the active duty exclusion, DFA says you do not qualify for a Low Income Tax Table. You may elect not to use the exclusion if a low income table works out better, so run both if your income is modest.
- If Arkansas tax was withheld from your military pay during the year, filing the return with line 9 completed is how you get that withholding refunded.
If your only income for the year was exempt military pay, the exemption can zero out your Arkansas tax entirely. If you think you missed the exemption in a prior year, ask DFA about filing an amended return before assuming the money is gone.
Deadlines
There is no separate application. The exemption rides on your annual return, so the only deadline is the normal one: the 2025 Arkansas return was due April 15, 2026. DFA grants filing extensions to November 15, but an extension extends the time to file, not the time to pay.
Related benefits
- Arkansas also gives active duty residents free hunting and fishing licenses, another perk that follows you even while stationed away.
- For contrast, Alabama exempts military retirement pay but still taxes active duty pay. Arkansas protects both.
- Alaska has no state income tax at all, the other way states end up not taxing military pay.
- Run the state benefits calculator to see what Arkansas owes you beyond the tax code.
What to do next
Make sure line 9 is filled in on your next Arkansas return, and check whether Arkansas tax is being withheld from your military pay right now. Then find out what else you are leaving on the table. Start your free benefits scan and we will check you against over 4,000 federal and state benefits, each with a dollar value and an official source.