Arkansas Military Tax Exemption Form: Pay, Retirement, Spouses

To claim an Arkansas military tax exemption, you file Form AR1000 (the individual income tax return) together with Form AR1000AD (the Schedule of Adjustments). Both are available from the Arkansas Department of Finance and Administration.¹²³

The Two Forms You Need

The AR1000 is the standard Arkansas resident income tax return. Active-duty military wages are handled directly on this form, in the income section, as a reduction to the wages you would otherwise report.

The AR1000AD is the schedule where you list subtractions from income. Military retirement pay and Survivor Benefit Plan payments go here. The total from the AR1000AD flows onto the AR1000 as a reduction to your taxable income.

You must be an Arkansas resident, meaning you keep your legal domicile in the state while receiving the military income you are claiming as exempt.

How to Enter Each Type of Military Income

Active-Duty Pay

If you serve on full-time active-duty orders in any branch of the U.S. Armed Forces, all of your military pay and allowances are exempt with no dollar cap.² Subtract the military wages directly on the income section of the AR1000. The amount you subtract must match the military wages shown on your W-2. If you also earned civilian wages during the year, only the military portion qualifies.

National Guard and Reserve Pay Without Active-Duty Orders

Guard and Reserve members who are not on active-duty orders can subtract up to $9,000 of service pay or allowances. Anything above that stays in your taxable income.² Weekend drills under Title 32 orders fall under this cap. If you were also activated to federal active duty under Title 10 during the year, the pay earned during that activation qualifies for the full exemption, and only the remaining drill pay is limited to the $9,000. Keep your orders so you can distinguish the two periods on a single W-2.

Military Retirement and Survivor Benefits

Retirement benefits from any of the uniformed services are fully exempt regardless of age, years of service, or whether the retirement is based on length of service or disability. Survivor Benefit Plan payments received by a surviving spouse qualify under the same statute.³

Report these on the AR1000AD on the line designated for military retirement benefits. Enter the full gross distribution shown on your 1099-R. Because the exemption is unlimited, the subtraction should equal the entire amount of the distribution. That total then carries onto the AR1000.

When You Have Both Active-Duty and Retirement Income

Some taxpayers, including retirees who returned to active service or reservists drawing retirement, receive both kinds of income in the same year. Complete the relevant section on both forms: the active-duty exclusion on the AR1000, the retirement subtraction on the AR1000AD. Check that the totals on both forms agree with each other and with your W-2 and 1099-R. Putting an amount on the wrong line is the most common filing mistake and can cause Arkansas to tax income that should be exempt.

Documents to Have in Hand

Pull your paperwork before you start entering figures. The exact documents depend on which exemption you are claiming.

Active-duty or reserve pay: your military W-2 from the Defense Finance and Accounting Service. It shows total military wages, tax withholdings, and any nontaxable combat pay in Box 12 under Code Q. Combat pay under Code Q is already excluded from Box 1 wages, so no additional subtraction is needed on your Arkansas return, but the amount is worth verifying.
Retirement or survivor benefits: your 1099-R from DFAS, showing the gross amount of your distributions. DFAS issues these annually and makes them available through myPay or by mail.⁴
Orders: if you served under both Title 10 and Title 32 during the year, keep the orders that show which period is which, since a single W-2 may combine both.

Write down the exact dollar amount you plan to subtract from each source document before you touch the forms. Mismatches between the numbers on your W-2 or 1099-R and the numbers you report are a common trigger for processing delays.

Combat Zone Pay and Filing Extensions

Federal combat zone rules flow through to your Arkansas return. Enlisted personnel can exclude all compensation earned in any month they served in a combat zone; commissioned officers can exclude compensation up to the enlisted pay cap plus any hostile fire or imminent danger pay for those months.⁵ Because Arkansas builds off federally adjusted figures, the same amount is excluded on your state return. That excluded amount will already be missing from Box 1 of your W-2, so you do not subtract it a second time.

Deployment also extends your filing deadline. Service members stationed outside the U.S. get an automatic two-month extension to June 16; attach a statement and a copy of your orders showing the overseas duty location. Filing IRS Form 4868 by June 16 pushes the deadline to October 15. Service members in a combat zone or contingency operation get an automatic 180-day extension that begins when they leave the designated area. IRS Publication 3, the Armed Forces’ Tax Guide, covers the federal rules in detail.⁶

A Note for Military Spouses

If you are the spouse of an active-duty service member, your wages may not belong on an Arkansas return at all. Under the Military Spouses Residency Relief Act, you can keep the legal residence you had before moving and pay state income tax only to that home state, provided you now live in a state different from your legal residence, you are here solely to be with your service member spouse, and your spouse is stationed here under military orders. Since 2019, spouses can also elect to use the service member’s state of legal residence even without having lived there. The same protection works in reverse for an Arkansas resident who moves out of state with a spouse under orders.

If you claim this protection, keep a copy of your spouse’s orders showing the duty station assignment and documentation of your legal domicile in the other state.

Submitting the Return and Keeping Records

You can file electronically through the Arkansas Taxpayer Access Point or mail paper forms to the Department of Finance and Administration.⁷ The mailing address on the AR1000 instructions differs depending on whether you owe a balance or expect a refund. Electronic filing generally processes faster.

After you file, you can check your refund status through the state’s online portal using your Social Security number. Keep copies of your AR1000, AR1000AD, W-2s, 1099-Rs, and any military orders you relied on for at least three years from the filing date, which is the retention period the IRS recommends. Those records are what you will reach for if the state ever questions an exemption you claimed.

1
Arkansas Department of Finance and Administration. Arkansas Department of Finance and Administration – Forms
2
Justia. Arkansas Code 26-51-306 – Compensation and Benefits From Military Service – Definitions
3
Justia. Arkansas Code 26-51-307 – Retirement or Disability Benefits – Definition
4
Defense Finance and Accounting Service. Getting Your 1099-R
5
eCFR. Combat Zone Compensation of Members of the Armed Forces
6
Internal Revenue Service. About Publication 3, Armed Forces Tax Guide
7
Arkansas.gov. Arkansas Taxpayer Access Point (ATAP)