1. (a) Who should file — Arkansas Code § 26-51-801(a).

   1. (1) Every person receiving gross income from Arkansas sources shall file an Arkansas individual income tax return for the tax year such gross income was received with the Revenue Division of the Department of Finance and Administration.

   2. (2) Arkansas sources shall include:

      1. (A) Real or personal property located within Arkansas; and
      2. (B) Business or personal activity carried on within Arkansas.

   3. (3)

      1. (A) However, gross income received by nonresident individuals from entirely passive sources within Arkansas is not subject to Arkansas individual income tax and thus need not be reported by such individuals to the Department of Finance and Administration.
      2. (B) Examples of gross income derived entirely from passive sources would be:

2. (i) Interest earned on a bank account located within Arkansas; or

   1. (ii) Dividends from stocks held by an investment firm located within Arkansas as part of its client's investment portfolio.

3. (b) Filing status 4 — Married filing separately on the same return — Arkansas Code § 26-51-801(a).

   1. (1) Married taxpayers who both have a net taxable income for the tax year may find that this method of tax computation will provide the greatest reduction in their tax liability over any other filing statuses that are available.
   2. (2) The net result will be either a combined refund or a combined tax due.

   3. (3) If there is tax due, both spouses will be considered jointly liable for it even though they are filing separately.

      1. (c) Completing and signing returns — Arkansas Code § 26-51-801(c).

   4. (1) If, for whatever reason, a taxpayer does not complete his or her own Arkansas individual income tax return, the return should be completed by an authorized agent or by a guardian or other court appointed person charged with caring for:

      1. (A) The taxpayer;
      2. (B) The taxpayer's estate; or
      3. (C) Both.

   5. (2) An authorized agent may be designated by power of attorney, will, or any other form of authorization made by the taxpayer that:

      1. (A) Is clear and unambiguous; and
      2. (B) Was made by the taxpayer while of sound mind and without duress or coercion.

   6. (3) If the authorized agent is merely a paid tax return preparer hired by the taxpayer, both the tax return preparer and the taxpayer must sign the return.

      1. (d) Head of household — Arkansas Code § 26-51-801(d)(2). A taxpayer shall be considered the head of a household if, and only if, the following three (3) conditions are met:
   7. (1) The taxpayer is not married at the close of his or her tax year;
   8. (2) The taxpayer is not a surviving spouse as defined by I.R.C. Reg. 1.2-2(a); and

   9. (3) The taxpayer either:

      1. (A) Maintains as his or her home a household that constitutes (for the tax year at issue) the principal place of abode, as a member of such household, of at least one (1) of the individuals described in I.R.C. Reg. 1.2-2(b)(3)(i) or (ii); or
      2. (B) Maintains, whether or not as his or her home, a household that constitutes (for the tax year at issue) the principal place of abode of at least one (1) of the individuals described in I.R.C. Reg. 1.2-2(b)(4).

4. (e) Surviving spouse — Arkansas Code § 26-51-801(d)(4).

   1. (1) The term "qualifying widow or widower with dependent child" shall mean the same thing as the term "surviving spouse".

   2. (2) A surviving spouse's Arkansas individual income tax return for each of the next two (2) tax years following the tax year in which the other spouse died shall be treated as a joint return and therefore taxed at the joint return rate if the surviving spouse:

      1. (A) Has not remarried at any time before the close of the tax year;

      2. (B) Maintains (pays more than fifty percent (50%) of the costs of) a household as his or her home that is the principal place of abode of a:

         1. (i) Son or daughter (including adopted or foster children); or
         2. (ii) Stepson or stepdaughter;
      3. (C) Is entitled to a dependency deduction for at least one (1) child; and
      4. (D) Was entitled to file a joint return with the deceased spouse for the year of death.
   3. (3) This surviving spouse rule does not apply to the tax year in which the spouse died.

   4. (4)

      1. (A) A joint return may be filed for a husband and wife (thus using a joint return tax rate) where their tax years start on the same day and end on different days because of the death of either or both.
      2. (B) However, if the surviving spouse remarries before the close of his or her tax year, he or she cannot file a joint return for himself or herself and his or her deceased husband or wife.

5. (f) Dependent defined — Arkansas Code § 26-51-801(d)(1).

   1. (1) A person qualifies as a taxpayer's dependent only if all of the following provisions are met:

      1. (A) Relationship test.

         1. (i) The person is:
6. (a) (a) Related to the taxpayer; or

7. (b) (b) A member of the taxpayer's household.

   1. (ii) The person will be considered a member of the taxpayer's household if, for the taxpayer's entire tax year, the person had as his or her principle place of abode the home of the taxpayer;

      1. (B)

         1. (i) The person's gross income does not equal or exceed the exemption amount.
         2. (ii) However, this gross income test does not apply to a child of the taxpayer who either:
8. (a) (a) Has not reached the age of nineteen (19) at the end of the calendar year in which the taxpayer's tax year begins; or

9. (b) (b) Is a student who has not reached the age of twenty-four (24) at the close of the calendar year;

   1. (C) Support test.

      1. (i) Except for a divorced or separated parent claiming his or her child as a dependent, a taxpayer can claim a person as a dependent only if he or she furnishes more than fifty percent (50%) of such person's support during the calendar year in which the taxpayer's tax year begins.

         1. (ii)
10. (a) (a) A taxpayer who provides at least ten percent (10%) of a person's support under a multiple support agreement may also meet the support test.

11. (b) (b) Refer to I.R.C. Reg. 1.152-3.

    1. (iii) The support test for a child of divorced or separated parents is set forth in I.R.C. Reg. 1.152-4 and I.R.C. Reg. 1.152-4T [removed].

       1. (iv)
12. (a) (a) Support funds can take many forms.

13. (b) (b) However, where the claimed dependent is in an institution supported by a state, charity, etc., the amount spent by the institution on the claimed dependent is:

    1. (1) (1) Part of support; and

    2. (2) (2) Treated as furnished by the institution;

       1. (D)

          1. (i) The person does not file a joint return under certain conditions.
          2. (ii) A taxpayer cannot take a dependency exemption for a married person who files a joint return with his or her spouse for a tax year beginning in the same calendar year that the taxpayer's tax year begins.
          3. (iii) However, an exemption may be claimed for a married dependent if neither the dependent nor his or her spouse is required to file a return but they file only to claim a refund of all tax withheld; and

       2. (E) To qualify as a dependent, at some time during the calendar year in which the tax year of the taxpayer begins, a person must be a:

          1. (i) Citizen or resident of the United States;
          2. (ii) Resident of the Canal Zone, Panama, Canada, or Mexico; or
          3. (iii) National of the United States.

    3. (2) Relationship test.

       1. (A) A person meets the relationship test only if he or she has one (1) of the following relationships to the taxpayer:

          1. (i) Child or descendant of child;
          2. (ii) Stepchild;
          3. (iii) Brother or sister, whether by whole or half blood;
          4. (iv) Stepbrother or stepsister;
          5. (v) Father, mother, or ancestor of either (grandparent, great-grandparent, etc.);
          6. (vi) Stepfather or stepmother;
          7. (vii) Nephew or niece;
          8. (viii) Brother or sister of father or mother (uncle or aunt);
          9. (ix) Brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law, or daughter-in-law.
       2. (B) I.R.C. Reg. 1.151-3(a).
       3. (C) A child born alive qualifies for the full dependency exemption (if other tests are met) even if the child lives only momentarily.

       4. (D) A person is treated as the taxpayer's child if the person is:

          1. (i)
14. (a) (a) Legally adopted by the taxpayer.

15. (b) (b) I.R.C. Reg. 1.152-2(c);

    1. (ii)
16. (a) (a) A member of the taxpayer's household and is placed with the taxpayer by an authorized placement agency for legal adoption by the taxpayer under a formal application filed with the agency.

17. (b) (b) The agency must be authorized to place children for adoption by a government or governmental subdivision (state, foreign country, etc.).

    1. (c) (c) I.R.C. Reg. 1.152-2(c)(2); or

       1. (iii)
18. (a) (a) A foster child if he or she meets the member of household test.

19. (b) (b) I.R.C. Reg. 1.152-2(c)(4).

    1. (E)

       1. (i) The relationship must exist with respect to the taxpayer claiming the dependency exemption on the taxpayer's separate return.

          1. (ii) On a joint return, the relationship need exist with respect to only one (1) spouse, and it does not matter which spouse furnished the dependent's support.

       2. (F) These individuals do not meet the relationship test:

          1. (i) Taxpayer’s grandnephew or grandniece;
          2. (ii) Stepchild’s descendant;
          3. (iii) Aunt’s husband; or
          4. (iv) Foster parent.

    2. (3) Support test — Definition of support. Support includes:

       1. (A) Food, school lunches, toilet articles, and haircuts;
       2. (B) Clothing;
       3. (C) Recreation, including toys, summer camp, horseback riding, entertainment, and vacation expenses;
       4. (D) Medical and dental care, including premiums on accident and health insurance;
       5. (E) Childcare expenses, even though a credit is also allowed for these expenses;
       6. (F) Allowances and gifts;
       7. (G) Son’s or daughter's wedding costs;

       8. (H)

          1. (i) Lodging.
          2. (ii) When furnished in kind, it is measured by its fair market value rather than actual cost.
          3. (iii) I.R.C. Reg. 1.152-1(a)(2);

       9. (I)

          1. (i) Education.
          2. (ii) These costs include board, uniforms at military schools, and tuition, even where free schooling is available.
          3. (iii)
20. (a) (a) Scholarship payments received by a dependent are treated as support furnished by someone other than the taxpayer.

21. (b) (b) However, scholarships are not counted in determining whether the taxpayer furnished more than fifty percent (50%) of the dependent's support if these tests are met:

    1. (1) (1) The dependent is a child (including stepchild, foster child, or child adopted or placed for adoption) of the taxpayer; and

    2. (2) (2) The dependent is a full-time student at an educational institution.

       1. (c) (c) I.R.C. Reg. 1.152-1(c);

       2. (J)

          1. (i) Social Security benefits received by a child and used for his or her support are considered provided by the child.
          2. (ii) I.R.C. Reg. 1.152-1(a)(2)(ii); and

       3. (K)

          1. (i) United States Armed Forces dependency allotments.
          2. (ii) The amount contributed by the government and the amount withheld from the pay of the member of the United States Armed Forces are treated as contributed by the member.

22. (g) Withholding for low-income employees — Arkansas Code § 26-51-801(e).

    1. (1) If a person's gross income is not high enough to subject the person to Arkansas’s individual income tax, such person must complete and submit to his or her employer Form AR4ECSP.
    2. (2) This form, also known as the employee's special withholding exemption certificate, must be signed and dated by the employee.
    3. (3) This form allows an employer that would normally withhold Arkansas income tax from the wages of such an employee to refrain from doing so.

Codification Notes: I.R.C. Reg. 1.2-2(a) is codified at 26 C.F.R. § 1.2-2(a). I.R.C. Reg. 1.2-2(b)(3)(i) or (ii) is codified at 26 C.F.R. § 1.2-2(b)(3)(i) or (ii). I.R.C. Reg. 1.2-2(b)(4) is codified at 26 C.F.R. § 1.2-2(b)(4) I.R.C. Reg. 1.152-3 is codified at 26 C.F.R. § 1.152-3. I.R.C. Reg. 1.152-4 is codified at 26 C.F.R. § 1.152-4. I.R.C. Reg. 1.152-4T was removed by 73 FR 37797, 37804. I.R.C. Reg. 1.151-3(a) is codified at 26 C.F.R. § 1.151-3(a). I.R.C. Reg. 1.152-2(c) is codified at 26 C.F.R. § 1.152-2(c). I.R.C. Reg. 1.152-2(c)(2) is codified at 26 C.F.R. § 1.152-2(c)(2). I.R.C. Reg. 1.152-2(c)(4) is codified at 26 C.F.R. § 1.152-2(c)(4). I.R.C. Reg. 1.152-1(a)(2) is codified at 26 C.F.R. § 1.152-1(a)(2). I.R.C. Reg. 1.152-1(c) is codified at 26 C.F.R. § 1.152-1(c). I.R.C. Reg. 1.152-1(a)(2)(ii) is codified at 26 C.F.R. § 1.152-1(a)(2)(ii).