College Tax Benefits for Arkansas Residents

Overview and Rules for Deducting Tuition Costs in Arkansas

Overview of Arkansas In-State Tax Benefits:

The state of Arkansas allows individuals who contribute money to the Arkansas Tax Deferred Tuition Savings Program (also known as GIFT) to take a deduction for contributions of up to $5,000 per taxpayer, per year.

In other words, a single parent could receive a maximum deduction of $5,000. A married husband and wife could receive a maximum deduction of $10,000.

The state also allows qualified withdrawals from other states’ Section 529 plans to avoid being included as income on your Arkansas state income tax return.

There is no deduction for actually paying college tuition (as opposed to contributing to the Arkansas Section 529 plan). However, you theoretically could make a deductible contribution to the Arkansas Section 529 plan for your college student, and then have it distributed to the school the very next day. This would effectively allow you to take a deduction, even if it is too late to fully use the plan.

Value of the Arkansas Section 529 Tax Deduction:

If you are an Arkansas resident trying to decide whether or not you should use the Arkansas Section 529 plan, you need to account for the potential tax savings of a contribution to the GIFT plan. Remember, contributions to other states’ plans do not earn you a deduction.

Considering that the top income tax bracket in Arkansas is 7%, a $10,000 contribution to a state plan can save you up to $700 at tax time.

In other words, receiving the deduction could be similar to a 7% bonus, right off the bat.

Claiming the Deduction:

The deduction, actually considered an “adjustment,” is claimed on Line 24 of the state income tax form.

Not a Tax Deduction, But an Awesome Benefit:

The state of Arkansas has initiated a "matching program" for residents, called the Aspiring Scholars Program, for contributions made to the Arkansas Section 529 plan.
If your household income is under $60,000, the state will match from 100-200% of your annual contribution, up to $500 per year!

Reference and Documentation:

You can find more information about claiming this deduction on page 15 of the Arkansas Individual Income Tax instruction booklet.