Arkansas Income Tax for Business Owners 2026 and 2027: 3.7% Top Rate, $94,700 Bracket Break, Corporate 4.1% in 2027 and the PET Election
Arkansas Income Tax for Business Owners 2026 and 2027: 3.7% Top Rate, $94,700 Bracket Break, Corporate 4.1% in 2027 and the PET Election
If you run a business in Arkansas, your income tax bill depends on how the business is organized. Sole proprietors, most partners, and the owners of S corporations and partnership-taxed LLCs report business profit on their personal Arkansas return. A C corporation files its own return and pays the corporate rate. That split is why the arkansas pass through entity tax question comes up so often: the same profit can fall under very different rate schedules depending on your structure, your income, and whether you make the PET election.
Disclaimer: This guide is informational only. It is not legal or tax advice. Tax rules change, and your situation may differ. Talk with a qualified CPA or tax attorney before you file a return or make any election.
Who Pays Arkansas Tax on Business Profit
How your income is taxed starts with your entity type:
- Sole proprietors: Business profit is reported on your personal return.
- Partnerships and LLCs taxed as partnerships: Profit passes through to each partner or member, who reports their share personally.
- S corporations: These are pass-through entities. Shareholders report their share of income on personal returns, so the corporate rates below do not apply to that income.
- C corporations: The corporation files its own return and pays corporate income tax on its net income.
2026 Individual Income Tax Rates
Act 1 of the 2026 special session (HB 1001, approved May 6, 2026) set the individual rates for 2026. They apply to tax years beginning on or after January 1, 2026. The top rate fell from 3.9% to 3.7%.
| Net income for the year | Rate |
|---|---|
| Up to $5,599 | 0% |
| $5,600 to $11,199 | 2% |
| $11,200 to $15,999 | 3% |
| $16,000 to $26,399 | 3.4% |
| $26,400 to $94,700 | 3.7% |
For a pass-through owner, these brackets apply to your total net income for the year. That figure includes your share of business profit along with wages, investment income, and other income. Business profit does not get its own rate schedule. It is added to everything else you earned, and the total determines where you land.
The $94,700 Bracket Break
The 3.7% rate applies from $26,400 up to $94,700. Above $94,700, a different table applies. Under Act 1, it begins with 2% on the first $4,700, then 3.7%, and includes a bracket adjustment that phases out at $97,601.
This matters for planning. If your net income lands near $94,700, the tax can change in a way the flat top rate does not show. Owners near that line should model both scenarios with a CPA before year end, because the timing of income and the deductions you claim can move you across it. Confirm the full above-threshold computation with the Department of Finance and Administration before you rely on any figure you calculate yourself.
Corporate Income Tax: 4.3% Now, 4.1% in 2027
C corporations pay graduated rates on net income. The schedule below applies to tax years beginning on or after January 1, 2024.
| Corporate net income band | Rate |
|---|---|
| First $3,000 | 1.0% |
| $3,001 to $6,000 | 2.0% |
| $6,001 to $11,000 | 3.0% |
| Over $11,000 | 4.3% through 2026, then 4.1% for tax years beginning January 1, 2027 |
The top rate drops to 4.1% for tax years beginning on or after January 1, 2027. For a calendar-year corporation, the 2027 return is the first one that uses the lower top rate.
Illustration only: Assume a calendar-year C corporation has $50,000 of net income and the lower bands do not change. Under the 2026 top rate, its tax is $1,917 (30 + 60 + 150 + 1,677). Under the 2027 top rate, its tax is $1,839 (30 + 60 + 150 + 1,599). That is a $78 difference. The cut is 0.2 percentage points on every dollar above $11,000, so the savings grow as profit grows.
Entity Fees That Sit Alongside the Income Tax
The annual franchise tax report is separate from income tax. It is filed with the Secretary of State, and it is the recurring filing most entity owners must not miss.
| Entity | Annual report | Amount | Due |
|---|---|---|---|
| LLC | Annual LLC Franchise Tax Report | $150 flat | On or before May 1 |
| Corporation | Annual Corporation Franchise Tax Report | $150 minimum, or 0.3% of outstanding capital stock if greater. $300 for a corporation without authorized stock. | On or before May 1 |
Late filing adds a $25 penalty plus interest. File through the Corporations Online Filing System, and check the Secretary of State's Business and Commercial Services page for current filing options.
The PET Election
Arkansas offers a pass-through entity tax (PET) election. It lets an eligible pass-through business pay income tax at the entity level instead of having each owner pay it on a personal return. Whether this makes sense depends on your ownership, your personal bracket, and how the payment is treated on your federal return. Owners of S corporations and partnerships should examine this option closely.
This guide does not state the PET rate, the election method, the eligibility details, or the deadline. Those details can change, and they must be confirmed directly with the Department of Finance and Administration before you decide. Ask a CPA to model both paths:
- Owner-level tax at your personal rate, including the 3.7% top rate and the $94,700 break.
- Entity-level tax under the PET election, including who pays it and when.
- How the entity-level payment affects your personal Arkansas return and your federal return.
- Whether the election is made each year, and what deadline applies.
- Whether the election changes your franchise tax report or any city license you hold.
Local Taxes: What Is and Is Not Owed
Arkansas has no city or county income tax. The local item to check is the city business license, privilege license, or registry, which is separate from income tax and varies by city. Little Rock and North Little Rock base their charge on a base fee plus employees. Bentonville runs a free registry. Conway does not impose one. Counties issue no general business license, so the city where you operate is the place to confirm current requirements.
Registrations That Affect Your Tax Reporting
Registration is handled by activity, not by a single statewide business license. The Arkansas Department of Finance and Administration handles several of the registrations that matter most:
- Sales and use tax permit: Required for any business selling tangible personal property or taxable services. It costs $50 and is applied for through the Arkansas Taxpayer Access Point. Register for a tax account.
- Withholding: If you have employees, withholding is also registered through the Taxpayer Access Point.
- Unemployment insurance: Registered with the Division of Reemployment.
- Entity filings: Formation and the franchise tax report go through the Secretary of State.
Your Next Steps
- Confirm your entity type and whether your income passes through to your personal return.
- Project your 2026 net income against the $26,400, $94,700, and $97,601 thresholds.
- Ask a CPA to model the PET election against owner-level tax, and confirm the election details and deadline with the Department of Finance and Administration.
- If you are a C corporation, plan for the 4.1% top rate on tax years beginning January 1, 2027. Watch for the 2027 individual rates from the Department of Finance and Administration, since this guide does not state them.
- Put the May 1 franchise tax report on your calendar every year.
Official Resources
- Arkansas Department of Finance and Administration
- Arkansas Secretary of State, Business and Commercial Services Division
- Corporations Online Filing System
- Arkansas Small Business and Technology Development Center
- SBA Arkansas District
This guide is informational only and is not legal or tax advice. Consult a qualified CPA or attorney for your specific situation.