On April 6, 2026, the Arkansas Department of Finance and Administration (DFA) released guidance on how to report income tax payments made by the USDA that are exempt from Arkansas income tax.

Overview

Act 696 of 2025 amended A.C.A. § 26-51-316 to exempt certain USDA payments from Arkansas income tax. These payments are made under programs authorized by Division B, Title I, of the American Relief Act of 2025 (Pub. L. No. 118-158).

The exemption includes payments from:

• Emergency Commodity Assistance Program (ECAP)

• Supplemental Disaster Relief Program (SDRP)

Additionally, A.C.A. § 26-51-314 exempts payments made to cattle farmers or ranchers under agricultural disaster programs, including the Emergency Livestock Relief Program (ELRP).

Data Entry

Use the following entries to exclude eligible payments from Arkansas income tax.

AR1000F / AR1000NR - Individual

Report USDA exempt income on Schedule AR OI, Line 18 (Other Subtractions). In Drake Tax, make an entry on AR screen OSUB. Input the USDA exempt income as a positive amount.

AR1002 / AR1002NR - Fiduciary

Report the USDA exempt income on Line 15 (Other Deductions). In Drake Tax, follow these steps: 

1. Go to AR screen 1.

2. Double-click line 15 Other Deductions to create a Detail Worksheet and enter:

   • Title: “Line 15 Attachment”

   • Include a description of the income and the exempt amount

AR1050 - Partnership

Filing Status 1 – Operating Only in Arkansas

Report the USDA exempt income on Form AR1050, Page 1, Line 8 (Farm Income). In Drake Tax, follow these steps: 

1. Go to AR Screen 1:

2. Double-click the override field for line 8 Farm Income under the Total column to create a Detail Worksheet and enter:

   • Title: “Line 8 Attachment”

   • Include description and net amount (income less exempt portion)

Filing Status 2 – Multi-State Apportionment

Report the USDA exempt income on Arkansas Schedule A, Line 3 (Deduct Adjustments). In Drake Tax, follow these steps:

1. Go to AR screen ADJ.

2. Double-click the box for line 11 (Other) to open the Detail Worksheet and enter:

   • Title: “Line 11 Attachment”

   • Include description and exempt amount

AR1100S - S Corp

Filing Status 1 – Operating Only in Arkansas

The USDA exempt income is reported on Page 1, Line 25 (Other Deductions). In Drake Tax, follow these steps:

1. Go to AR screen 2.

2. Double-click the box for line 25 Other Deductions (Attach schedule) to open the Detail Worksheet and enter:

   • Title: “Line 25 Attachment”

   • Include a description and the exempt amount

Filing Status 2 – Multi-State Apportionment

The USDA exempt income is reported on Schedule A, Line 3. In Drake Tax, follow these steps: 

1. Go to AR screen ADJ.

2. Double-click the box for line 11 (Other) to open the Detail Worksheet and enter:

   • Title: “Line 11 Attachment”

   • Include description and exempt amount

AR1100PET

Filing Status 1 – Operating Only in Arkansas

The USDA exempt income is reported on Schedule K (Page 1 of AR1100PET). In Drake Tax, follow these steps: 

1. Go to AR screen KREC screen.

2. On line 12c Other deductions, in the Adjustment column, input the amount as a negative to adjust Arkansas source income

Filing Status 2 – Multi-State Apportionment

The USDA exempt income is reported on Schedule A, Line 3. In Drake Tax, follow these steps: 

1. Go to AR screen ADJ.

2. Double-click the box for line 11 (Other) to open the Detail Worksheet and enter:

   • Title: “Line 11 Attachment”

   • Include description and exempt amount

Related Links

• Individual and Fiduciary Guidance

• Pass-Through Entity Guidance