Arkansas State Taxes for Expats: What You Need to Know
Moving abroad doesn't automatically end your Arkansas tax obligations. Whether you still owe state taxes depends on a crucial factor: your residency status.
The Bottom Line
Arkansas may continue taxing your worldwide income if you haven't properly established residency elsewhere. The good news? Arkansas honors the Foreign Earned Income Exclusion, so properly excluded income on your federal return generally isn't taxed again by the state.
Understanding Arkansas Residency vs. Domicile
These terms sound similar but mean different things for your taxes:
Residency is where you currently live, either temporarily or permanently. You can have multiple residences.
Domicile is your permanent home—the place you intend to return to indefinitely. You can only have one domicile at a time, and it requires the intent to remain permanently.
Are You Still an Arkansas Resident?
You're considered a resident if:
- Arkansas remains your domicile (your intended permanent home)
- You haven't established domicile elsewhere
- You maintain significant ties to the state
Tax implications: Residents pay Arkansas taxes on worldwide income, though the Foreign Earned Income Exclusion applies to qualifying foreign wages. Passive income like dividends, interest, and rental income doesn't qualify for this exclusion.
You're a nonresident if:
- Your domicile is established elsewhere
- You spend fewer than 183 days in Arkansas annually
- You've severed significant ties to the state
Tax implications: Nonresidents only pay Arkansas taxes on Arkansas-sourced income, such as wages earned in the state, rental income from Arkansas property, or profits from selling Arkansas real estate.
Part-year residents are taxed on all income earned while living in Arkansas, plus Arkansas-sourced income for the remainder of the year.
What Counts as Arkansas-Sourced Income?
Even as a nonresident, you'll owe Arkansas taxes on:
- Wages for services performed in Arkansas
- Business income from Arkansas operations
- Rental income from Arkansas property
- Capital gains from selling Arkansas real estate
- Dividends from Arkansas-based companies
- Pensions from Arkansas institutions or for Arkansas employment
The Case for Moving to a No-Tax State
Many expats strategically establish domicile in states without income tax—Florida, Texas, Nevada, South Dakota, Washington, Wyoming, Alaska, Tennessee, or New Hampshire.
Key advantages:
Substantial tax savings: High earners and those exceeding the 2024 FEIE limit of $126,500 can shield more income from taxation.
Estate planning benefits: No-tax states often have favorable inheritance laws, preserving more wealth for heirs.
Simplified compliance: A no-tax domicile eliminates resident-state tax on worldwide income, though you may still need to file returns where you work or own property.
Greater flexibility: Attractive for international professionals, business owners with multi-state interests, and retirees spending extended time abroad.
How to Change Your Arkansas Residency
Changing domicile requires more than just moving. Arkansas looks at your overall circumstances to determine residency. Here's how to strengthen your case:
1. Establish Your New Domicile
- Obtain a genuine residential address in your new state (consider domicile services offering legitimate street addresses)
- File a Declaration of Domicile if your new state requires it
- Sign a lease or purchase property showing intent to stay
2. Sever Arkansas Ties
- Sell Arkansas property or convert it to rental/investment property
- Transfer your driver's license to your new state
- Register your vehicle in the new state
- Register to vote in your new state (if eligible)
- Close Arkansas bank accounts or update to your new address
- Update your address on all identification, insurance policies, medical records, and financial accounts
3. Notify Relevant Parties
- File IRS Form 8822 for address changes
- Update your employer's records
- Notify banks, investment firms, and insurance companies
- Change your address with the Social Security Administration
4. Document Everything
- Keep receipts, utility bills, lease agreements, and property documents
- Track your physical presence in both Arkansas and your new state
- Save travel records, credit card statements, and phone location data
- Document community involvement in your new state
5. Prepare for Potential Audits
Arkansas may audit your residency status. Be ready to provide comprehensive proof that you've permanently relocated, including all documentation of your new domicile and severed Arkansas connections.
Federal Tax Benefits for Expats
Living abroad offers significant federal tax advantages:
Foreign Earned Income Exclusion (FEIE): Exclude up to $126,500 (2024) of foreign wages from federal taxes if you pass the Bona Fide Residency Test (full-year foreign residency) or Physical Presence Test (330 full days abroad in 12 months).
Foreign Tax Credit (FTC): Credit foreign taxes paid against your U.S. tax liability to avoid double taxation—especially valuable in high-tax countries.
Foreign Housing Exclusion (FHE): Exclude qualifying housing expenses (rent, utilities, reasonable costs) exceeding 16% of the FEIE limit.
The Cost of Non-Compliance
Arkansas enforces its tax laws strictly:
Late filing penalty: 5% of unpaid tax per month, up to 25% maximum. Returns over 60 days late face a minimum penalty of $135 or 100% of unpaid tax, whichever is less.
Late payment penalty: 0.5% of unpaid tax per month, up to 25% maximum.
Interest charges: 1.25% monthly on unpaid taxes until paid in full—this adds up quickly.
Residency audits: Arkansas may audit your status, requiring extensive documentation. Inadequate proof can result in additional assessments and penalties.
Take Action
If you're an Arkansas expat, review your residency status now. If Arkansas still considers you a resident and you haven't established domicile elsewhere, you may owe taxes on worldwide income.
Consider whether establishing domicile in a no-tax state makes sense for your situation. Document your move thoroughly, maintain detailed records, and consult with qualified tax professionals familiar with both Arkansas law and expat taxation.
Your tax obligations don't end when you move abroad—but with proper planning, you can minimize them legally and avoid costly surprises.
Need help establishing residency in Florida? Visit NomadPilot for state-specific residency guides and resources tailored to help expats navigate their tax obligations.
