Arkansas COVID-19 guidance on estimated payments and nontaxability of Recovery Rebates; possible exemption for agricultural Market Facilitation Payments

There are handful of updates since our detailed coverage of Arkansas tax filing and payment extensions associated with COVID-19: (1) 2020 Q1 Arkansas income tax estimated payment guidance, (2) nontaxability of IRS stimulus checks; and (3) possible exemption from income tax of USDA Market Facilitation Program payments.

Arkansas estimated payment guidance: The Arkansas Department of Finance and Administration website page COVID-19: DFA Frequently Asked Questions is its clearinghouse for epidemic-related tax updates.  The page now contains guidance for the 2020 first quarter estimated tax payments that are due April 15. (Arkansas has not extended its estimated payment deadline to match the federal estimated payment extension.)  The website gives two options: Elect to use the same quarterly estimate for 2020 as was used for the 2019 estimate (assuming income has not changed substantially), or adjust employer W-2 withholding.  Taxpayers who wind up facing estimated payment underpayment penalties when the 2020 return finally is filed in 2021 will then apply for penalty waivers, which presumably DFA will freely grant.

Nontaxability of IRS stimulus payments: Economic Impact Payments, more commonly known as stimulus payments or Recovery Rebates, are now being sent by the IRS to individuals.  On the DFA FAQ website, the agency clearly states that "[t]he COVID-19 novel coronavirus recovery rebate check is not subject to Arkansas Individual Income Tax."  The reasoning is that the payments "are not considered taxable income for the purposes of Arkansas Individual Income Tax."  This position is based on DFA's interpretation of existing law.  In addition, recently adopted amendatory language to DFA's budget bill, HB1083, would clearly provide for nontaxability of recovery rebates by treating them as exempt income.  That language would be effective for tax years beginning on or after January 1, 2020.

Possible exemption from income tax of USDA Market Facilitation Payments: The adopted amendment to HB1083 would also exempt from Arkansas income tax "[p]ayments made to a taxpayer by the United States Department of Agriculture under the Market Facilitation Program."  Provided, however, that expenses for losses related to the receipt of a payment would not be deductible or otherwise permitted to offset other income.  This exemption would be effective for tax years beginning on or after January 1, 2020.

Update: HB 1083 was enacted as Act 95 of the 2020 Fiscal Session, including these provisions.

 

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