Updated October 5, 2026. Quick answer: Yes. Arkansas taxes interest and dividends as income, and the instructions say “Marginal Income Tax rates for 2025 are 3.9%, as amended in 2024.” An act approved May 6, 2026 lowers the top rate to 3.7% from 2026. Interest on U.S. and Arkansas obligations is exempt.
How Arkansas treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed on the graduated schedule |
| 2025 rates | 0.00% up to $5,599, 2.00% from $5,600, 3.00% from $11,200, 3.40% from $16,000 and 3.90% from $26,400 for net income up to $94,700, per the Department’s indexed bracket table |
| Where it is reported | On the return, “enter all interest received or credited to your account during the year.” |
| Exempt interest | The instructions list interest “from direct United States obligations, its possessions, the State of Arkansas” and any “political subdivision of the State of Arkansas is exempt from tax.” |
| Mutual funds | Interest on government “securities paid to individuals through a mutual fund is exempt from tax.” |
| Other states’ bonds | The instructions print no separate line for other states’ municipal bonds, so they do not say in terms how that interest is treated |
| Schedule | “If the total is $1,500 or greater, complete and attach Form AR4.” |
A $20,000 example
Taxable dividends and interest of $20,000 taxed wholly at the 2025 top rate, 3.90%, would add $20,000 x 3.90% = $780; at the 2026 top rate, 3.7%, $20,000 x 3.7% = $740. Income below $26,400 is taxed at the lower steps.
What changes in 2026
Act 2 of the First Extraordinary Session of 2026 (“APPROVED: 5/6/26”) lowers the top rate from 3.9% to 3.7% for tax years beginning on or after January 1, 2026.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Arkansas taxes capital gains, whether Arkansas taxes pensions, how Arkansas taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 AR1000F Arkansas Individual Income Tax Instructions: https://www.dfa.arkansas.gov/images/uploads/incomeTaxOffice/2025_AR1000F_Instructions.pdf
- State of Arkansas Indexed Tax Brackets, Tax Year 2025: https://www.dfa.arkansas.gov/images/uploads/incomeTaxOffice/2025_Indexed_Tax_Brackets.pdf
- Act 2 of the First Extraordinary Session of 2026 (Senate Bill 1): https://arkleg.state.ar.us/Acts/FTPDocument?path=/ACTS/2026S1/Public/&file=2.pdf&ddBienniumSession=2025/2025S1
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.