Arkansas Payroll Tax Default Prevention Checklist

Arkansas Payroll Tax Default Prevention Checklist

Understanding Withholding Tax Default

Withholding tax default occurs when an employer fails to file required returns or pay withheld taxes to the state by the established due dates. This includes state income tax withheld from employee wages under Arkansas payroll withholding requirements.

The state considers this a serious compliance violation because withheld funds belong to employees, not the business. Default may involve missed payments, unfiled returns, or both situations occurring simultaneously.

Why the State Requires Compliance

Arkansas requires employers to withhold state income tax from employee paychecks and remit these funds on prescribed schedules. Arkansas employers classified as monthly filers must submit Form AR941M by the 15th day of the following month, while annual filers submit Form

AR941A by January 31 when total annual withholding falls below $1,000.

Arkansas law establishes that every employer becomes personally and individually liable for amounts required to be deducted and withheld, regardless of whether those amounts were actually deducted. The state initiates collection action when Arkansas employers fail to meet filing and payment obligations under established payroll regulations during each tax year.

Consequences of Ignoring Arkansas DFA Withholding

Tax Delinquency

When employers do not address withholding tax default, the state escalates collection efforts.

Penalties and interest accrue on unpaid amounts at a fixed rate of 10% per year from the original due date until payment.

Penalties for late filing reach 5% per month of the tax owed, up to a maximum of 35%, while penalties for late payment without filing reach 1% per month, up to the same 35% maximum.

The state may file tax liens against business assets, pursue collection through legal proceedings, and cancel or refuse business licenses under Arkansas Code § 26-18-601.

Collection efforts may continue for ten years after assessment under Arkansas Code §

26-18-306, allowing extended enforcement periods for unresolved tax liabilities.

What Default Does Not Mean

Withholding tax default does not automatically result in criminal charges against the business or its owners. The state does not immediately seize all business assets without providing notice and opportunity to respond. Employees face no criminal liability for their employer’s failure to remit withheld income tax. The state has not filed a lawsuit solely because taxes remain unpaid, though continued noncompliance may lead to legal action under Arkansas tax law.

Prevention and Resolution Steps

Gather Documentation

Locate all notices received from the Withholding Tax Branch regarding unpaid amounts or unfiled returns. Collect payroll records, withholding statements, and payment confirmations for the past 12 to 24 months, then identify specific tax periods that remain unpaid or unfiled.

Calculate Total Liability

Determine the original tax amount owed for each filing period, along with the exact due dates.

Calculate penalties at 5% per month for late filing or 1% per month for late payment, not exceeding 35% total, then add interest at 10% per year from each due date to present under tax regulations.

Contact the Withholding Tax Branch

Call the Arkansas Department of Finance and Administration Withholding Tax Branch at

501-682-7290 during business hours between 8:00 AM and 4:30 PM Central Time. Provide your business name, federal employer identification number, and the specific tax periods in question related to individual income tax withholding.

Request a current account statement showing all outstanding balances, assessed penalties, and accrued interest. Document the name and contact information of the representative who assists you with payroll tax matters.

File Missing Returns

Identify which monthly Form AR941M or annual Form AR941A tax return remains unfiled by reviewing your filing history. Obtain blank forms from the Arkansas Taxpayer Access Point at

www.atap.arkansas.gov or by contacting the Withholding Tax Branch, then complete each missing tax return using payroll records to report wages paid and taxes withheld accurately.

Arrange Payment

Pay the full amount owed if your business has sufficient cash flow to resolve state withholding tax obligations. Contact the Arkansas Department of Finance and Administration at

501-682-7290 to discuss Arkansas DFA payroll tax payment plan options if full payment is not possible, and request written confirmation of any payment arrangement terms before making the first payment.

Maintain Future Compliance

Mark due dates for future withholding tax filings on your business calendar to prevent additional

Arkansas Form AR941M late filing penalty assessments. Establish internal procedures to ensure returns are completed and filed before each deadline under current tax year requirements, and arrange for payment to be made simultaneously with filing whenever your business cash flow permits.

Common Mistakes to Avoid

Do not ignore correspondence from the Arkansas Department of Finance and Administration, as notices contain critical deadlines and balance information regarding payroll taxes. Filing returns without arranging payment does not prevent penalties and interest from continuing to accumulate on the unpaid balance.

Missing even one payment under an approved payment arrangement may result in plan cancellation and the resumption of collection action. Errors on returns delay processing and may trigger additional notices, so verify all information carefully before submission.

Frequently Asked Questions

Does the state charge interest on unpaid withholding taxes?

The state charges 10% interest per year on unpaid taxes from the original due date until payment in full.

Can penalties be reduced or waived?

The state has penalty waiver procedures available. Contact the Withholding Tax Branch at

501-682-7290 to discuss whether your circumstances qualify for relief based on reasonable cause.

How long can the state collect unpaid withholding taxes?

Arkansas Code § 26-18-306 establishes a ten-year collection period from the date of assessment for the collection of taxes by levy or court proceedings.

Are business owners personally liable for unpaid withholding taxes?

Arkansas law establishes that employers are personally and individually liable for amounts required to be withheld, regardless of whether the amounts were actually deducted, except in limited circumstances of reasonable cause.

Taking Action

Withholding tax default requires systematic action through documentation, filing missing returns, and arranging payment with the Arkansas Department of Finance and Administration. The

Withholding Tax Branch assists businesses in resolving unpaid amounts, though procedures vary depending on individual circumstances.

Maintaining organized records and documenting all communication with state officials helps prevent misunderstandings and supports resolution efforts. Prioritizing future compliance prevents recurring default and protects your business from escalated collection actions.

Facing State Tax Enforcement Action?

If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.