Live in Arkansas, Work in Indiana: Which State Taxes Your Paycheck?
Answer
Expect withholding in Indiana and a return in both. Arkansas and Indiana hold no reciprocal agreement, so the overlap is resolved after the fact: Indiana taxes the Indiana-source wages, and your Arkansas resident return claims a credit for that tax against the Arkansas liability on the same income.
Last verified
Without an agreement between Arkansas and Indiana, the overlap is handled after the fact rather than prevented. That is why the filing order matters: the Indiana figure is an input to the Arkansas return, so completing Arkansas first means doing it twice.
A Arkansas resident taxed by another state on the same income claims the credit for taxes paid to other states on Form AR1000TC. The credit is capped at the Arkansas tax on that income, so it removes the double tax but never refunds the excess when the other state charges more.
Indiana also has a layer below the state one, and it is the layer that survives every agreement: Every Indiana county levies its own income tax, and the reciprocal agreements do not cover it. A resident of a reciprocal state who works in Indiana still pays Indiana county tax on those wages.
What you file
- 1Nonresident return · IndianaForm IT-40PNR
File the Indiana nonresident return FIRST — you need the Indiana tax figure before you can complete Arkansas.
- 2Resident return · ArkansasForm AR1000TC
File a Arkansas resident return reporting all income, then claim the credit for tax paid to Indiana. The credit is capped at what Arkansas would have charged on that same income, so if Indiana taxes it at a higher rate the difference is not refunded.
The two states, side by side
| Arkansas | Indiana | |
|---|---|---|
| Taxes wages | Yes — graduated | Yes — flat |
| Reciprocity partners | None | 5 (Form WH-47) |
| Convenience rule | No | No |
| Nonresident return | Form AR1000NR | Form IT-40PNR |
| Credit for other-state tax | Form AR1000TC | Schedule 6 (Form IT-40PNR) |
| Nonresident safe harbour | None published | None published |
| Local income tax | No | Yes |
| Revenue department | Arkansas Department of Finance and Administration | Indiana Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Indiana and working in Arkansas gives:Both states — credit offsets the double tax.
Same two states, different situation
The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.
- Remote worker: Arkansas → IndianaHome state only
- 1099 contractor: Arkansas → IndianaHome state, plus the client state if you work there
- Moved mid-year: Arkansas → IndianaTwo part-year returns
Other Arkansas pairs
Questions people actually ask
I live in Arkansas and work in Indiana. Which state takes the tax out of my paycheck?
Expect withholding in Indiana and a return in both. Arkansas and Indiana hold no reciprocal agreement, so the overlap is resolved after the fact: Indiana taxes the Indiana-source wages, and your Arkansas resident return claims a credit for that tax against the Arkansas liability on the same income.
Which state should my employer be withholding for?
Indiana. The wages are sourced to Indiana, so Indiana withholding is correct and there is no Arkansas withholding to set up.
Will I end up paying tax twice on the same income?
Not twice over, but you will pay the higher of the two rates. Arkansas gives residents a credit for tax paid to Indiana on the same income, claimed on Form AR1000TC. The credit is capped at the Arkansas tax on that income, so if Indiana taxes it more heavily the excess is not refunded by either state.
How current is this?
The Arkansas and Indiana rules on this page were last checked against Arkansas Department of Finance and Administration and Indiana Department of Revenue on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.
Sources
Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.
- Arkansas Department of Finance and Administration — individual income taxaccessed 2026-08-07
- Indiana Department of Revenue — individual income taxaccessed 2026-08-07