How do I deduct the military spouse's income on the Arkansas return?

If you are the spouse of a servicemember stationed in Arkansas, you may qualify for an exemption from Arkansas income tax under the Military Spouses Residency Relief Act (MSRRA). This federal law allows eligible military spouses to keep their state of residency for tax purposes even while living and working in Arkansas with the servicemember.

As a result, wages earned in Arkansas may be exempt from Arkansas income tax if you meet the eligibility requirements.

Who Qualifies for the Arkansas MSRRA Exemption?

According to the Arkansas Department of Finance and Administration, all three of the following conditions must be met:

1. Your servicemember spouse is in Arkansas under military orders.
2. You moved to Arkansas solely to live with your servicemember spouse.
3. You and the servicemember share the same state of domicile or legal residence.

If all three requirements are met, your Arkansas wages may be exempt from Arkansas income tax.

Claiming an Exemption From Arkansas Withholding

To prevent Arkansas income tax from being withheld from future paychecks, complete Form AR-MS, Tax Exemption Certificate for Military Spouse, and provide it to your employer.

If Arkansas tax was already withheld from your wages during the year, you may be able to claim a refund when filing your Arkansas return.

When filing:

• File Form AR1000NR (Arkansas Nonresident Return).
• Write "Military Spouse" at the top of the return.
• Attach Form AR-MS and any supporting documentation, such as a Leave and Earnings Statement (LES) or other documents that verify eligibility.
• Do not include exempt military spouse income on the Arkansas return.

For future tax years, a new Form ARW-4MS should be submitted to your employer each year to continue claiming exemption from Arkansas withholding.

How to Claim a Refund of Arkansas Tax Withheld in TaxSlayer

If Arkansas income tax was withheld from exempt wages, follow these steps in TaxSlayer to claim a refund:

1. Go to State.
2. Select Edit for the Arkansas Nonresident return.
3. Choose Subtractions from Income.
4. Select Military Income Exclusion.
5. Enter the required information and continue through the return.

Don't Forget Your Resident State Return

While your income may be exempt from Arkansas tax under the MSRRA, the income may still be taxable in your state of legal residence. Be sure to review the filing requirements for the state where you claim residency, as you may need to report the income on that state's return.

This exemption affects where income is taxed, not whether the income is taxable.