Working in Arkansas Living in Missouri Taxes: Your 2026 Guide to Multi-State Tax Filing

If you’re working in Arkansas while living in Missouri, navigating the tax implications of working in arkansas living in missouri taxes requires careful attention to both federal and state rules. For the 2026 tax year, expanded federal deductions and the lack of reciprocal tax agreements between Arkansas and Missouri make strategic planning essential. This comprehensive guide explains your filing obligations, available deductions, and how to minimize your total tax burden when you live and work across state lines.

Table of Contents

• Key Takeaways
• What Are Your Cross-State Tax Obligations?
• How Can You Maximize 2026 Federal Deductions?
• Why State Tax Credits Matter for Multi-State Workers
• What Filing Requirements Apply to You?
• How Should You Structure Your Withholding?
• What Documentation Should You Keep?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions

Key Takeaways

• Missouri requires tax filing on income earned within the state; Arkansas taxes residents on worldwide income regardless of work location.
• The 2026 federal standard deduction is $15,750 (single) or $31,500 (married filing jointly), reducing your taxable income significantly.
• New deductions for overtime pay ($12,500) and tips ($25,000) can dramatically lower your 2026 tax liability.
• No reciprocal tax agreement exists between Arkansas and Missouri, requiring careful withholding coordination and state tax credit planning.
• Professional tax preparation is highly recommended to ensure compliance with both state filing requirements and federal law.

What Are Your Cross-State Tax Obligations?

When you work in Arkansas while living in Missouri, your tax situation involves multiple jurisdictions claiming rights to tax your income. Understanding how each state approaches taxation is fundamental to achieving compliance and minimizing your total tax burden. For 2026, this complexity has increased with new federal deductions that each state may treat differently.

Missouri applies a source-based taxation system. Any income earned within Missouri borders is subject to Missouri state income tax, regardless of where you live. Since you work in Arkansas, income from your employment there is not automatically subject to Missouri tax. However, if you have any Missouri-source income (investment income, rental property, business activities), Missouri claims that income. Additionally, Missouri residents are required to file state returns and may owe tax on income from all sources, subject to credits for taxes paid to other states.

Arkansas, conversely, requires all residents to pay tax on their worldwide income. As an Arkansas resident, you owe state tax on all income regardless of where it’s earned—including your wages from employment, investment income, and any other earnings. Your Arkansas residency status triggers this filing obligation, making state tax compliance essential.

The Lack of Reciprocal Tax Agreements

One critical factor distinguishing Arkansas and Missouri cross-border situations is the absence of a reciprocal tax agreement between these two states. Some states—including Pennsylvania, Illinois, Indiana, Kentucky, Maryland, Michigan, Mississippi, New Jersey, Ohio, Virginia, and West Virginia—maintain reciprocal agreements. These agreements allow nonresidents who work in the state to file only in their state of residence if they otherwise qualify.

Without such an agreement, you cannot avoid filing in both states. This means you must file a Missouri return (likely showing zero or minimal Arkansas-source income) and an Arkansas return (reporting all worldwide income including your Arkansas work earnings). The difference between your federal tax liability and what you owe each state creates a complex calculation that often requires professional assistance to ensure accuracy.

Understanding Income Allocation for 2026

Your primary income source—wages from employment in Arkansas—belongs entirely to Arkansas for state tax purposes. When you file your Arkansas return, this employment income forms the foundation of your tax calculation. Missouri, meanwhile, may demand that you file a return showing this out-of-state income, though you can claim a credit for taxes paid to Arkansas on this same income.

For the 2026 tax year, this allocation matters more than ever. The expanded federal standard deduction and new deductions reduce your federal taxable income. Both Arkansas and Missouri conform to federal income tax law to varying degrees. Understanding how each state adopts or decouples from new federal provisions ensures you don’t overpay or miss available credits.

How Can You Maximize 2026 Federal Deductions?

The One Big Beautiful Bill Act (OBBBA), enacted in 2025, fundamentally reshaped federal tax deductions for 2026. If you work in Arkansas and live in Missouri while receiving overtime or tip income, these new provisions can significantly reduce your federal taxable income. Understanding and claiming these deductions is essential for maximizing your refund and minimizing year-end tax liability.

The Enhanced Standard Deduction

For the 2026 tax year, the standard deduction for single filers is $15,750, up $750 from the prior year. Married couples filing jointly benefit from a $31,500 standard deduction, a $1,500 increase. Head of household filers claim $23,625. These increases mean more of your income is protected from federal tax before any tax is calculated.

This larger standard deduction represents one reason the IRS expects higher refunds for 2026 filers. Many employers did not update withholding tables when the OBBBA passed in mid-2025. Consequently, workers had excess federal income tax withheld from paychecks throughout the year. When you file your 2026 return, this larger deduction reduces your taxable income further, resulting in a refund of the excess amounts withheld.

Additionally, if you are age 65 or older, you qualify for an extra $2,000 standard deduction (or $2,600 if married filing jointly). This “above-the-line” additional deduction recognizes the additional expenses many retirees face and provides meaningful tax relief for older workers who continue employment in Arkansas while residing in Missouri.

The New Overtime Pay Deduction

If you earn overtime pay in your Arkansas employment, the 2026 overtime deduction can provide exceptional tax savings. The IRS allows you to deduct up to $12,500 in overtime pay if you file as a single taxpayer, or up to $25,000 if you file married filing jointly. This deduction applies only to compensation earned for hours worked beyond 40 in a workweek under Fair Labor Standards Act (FLSA) requirements.

Here’s how the overtime deduction works: Suppose you normally earn $20 per hour for your first 40 hours each week. Your employer pays you $30 per hour for hours beyond 40. Only the additional $10 per hour counts toward your overtime deduction. If you work 50 hours in a week, you earn an additional $100 in overtime compensation qualifying for the deduction. Multiply this weekly amount by your weeks worked annually to determine your total deductible overtime.

The deduction phases out for higher earners. Single filers with income exceeding $150,000 and married filers with income exceeding $300,000 face reduced deduction amounts. However, for most middle-income workers, this deduction is fully available and can reduce your federal taxable income substantially.

The New Tips Income Deduction

Service workers who receive tips can deduct up to $25,000 in qualifying tip income for 2026 (the same limit applies regardless of filing status). Only tips that meet specific criteria qualify: they must be voluntary, not subject to negotiation, and you must work in an occupation that customarily receives tips (determined by IRS guidelines as of December 31, 2024).

Like the overtime deduction, the tips deduction phases out at higher income levels. Single filers earning more than $150,000 and married filers earning more than $300,000 face reduced deduction amounts. Mandatory service charges paid by customers do not qualify; only voluntary tips count. If your tips are part of a formal tip-sharing arrangement with coworkers, those shared tips still qualify.

Documentation is critical for claiming the tips deduction. Maintain records of daily tips received. Your employer may report tips on your W-2, but your own records provide crucial backup documentation in case of IRS inquiry. For 2026, keeping detailed records becomes even more important as the IRS implements new reporting requirements for employers on Form W-2.

2026 Federal Deduction	Standard Deduction	Overtime Deduction	Tips Deduction
Single Filer	$15,750	$12,500	$25,000
Married Filing Jointly	$31,500	$25,000	$25,000
Head of Household	$23,625	$12,500	$25,000

Why State Tax Credits Matter for Multi-State Workers

When you earn income in Arkansas while residing in Missouri, both states claim rights to tax that income. To mitigate double taxation, states offer tax credits. However, understanding how these credits work is essential for cross-border workers.

Arkansas Tax Credit on Your Missouri Return

When you file your Missouri return as a resident, Missouri will allow you a credit for taxes paid to Arkansas. This credit is calculated based on the proportion of your income that was earned in Arkansas. If all your income came from Arkansas, you would receive a credit for Arkansas taxes paid on 100% of your income.

However, the credit is limited to the lesser of two amounts: the actual tax paid to Arkansas or the amount of Missouri tax attributable to that income. If Arkansas’s tax rate on your income is higher than Missouri’s rate on the same income, the credit may not fully eliminate double taxation. Conversely, if Missouri’s rate is higher, you may not owe any Missouri tax after applying the credit.

Arkansas Residency and Tax Liability

As an Arkansas resident, your Arkansas state return must include all income from all sources. The good news is that Arkansas does not deduct federal income tax to arrive at state taxable income in all cases, so some of your federal deductions may not reduce your Arkansas tax liability. This creates planning opportunities. Understanding Arkansas’s specific treatment of the new 2026 federal deductions helps you project your state tax liability accurately.

Arkansas also offers various credits and deductions specific to Arkansas residents. These might include credits for taxes paid to other states, credits for military service income, and other targeted tax relief provisions. Identifying which credits apply to your situation can substantially reduce your bottom-line tax liability.

What Filing Requirements Apply to You?

Filing requirements for cross-border workers span three levels: federal, Arkansas state, and Missouri state. Each has specific forms and deadlines. Missing any deadline can result in penalties and interest charges, making careful planning and timely action essential.

Federal Return Filing Requirement

You must file a federal Form 1040 if your income exceeds the standard deduction for your filing status. For 2026, the standard deduction is $15,750 for single filers. If your gross income exceeds this amount, filing is mandatory. Additionally, if you have self-employment income exceeding $400, or if you owe alternative minimum tax, you must file even if income falls below the standard deduction.

Your federal return incorporates all the new 2026 deductions. When claiming the overtime or tips deduction, you’ll use Schedule 1 (Form 1040) to report these amounts. The IRS has issued detailed guidance on claiming these deductions, and your tax software or professional tax preparer must be updated to handle these new provisions correctly.

Arkansas State Return Filing Requirement

As an Arkansas resident, you must file an Arkansas return (Form AR1000 or Form AR1000-NR if you became a resident partway through the year) if your income exceeds Arkansas’s filing threshold. Arkansas generally conforms to federal filing requirements, so if you must file federally, you typically must also file in Arkansas. However, Arkansas has specific provisions regarding federal conformity for the new 2026 deductions that you should verify with an Arkansas tax professional.

When filing your Arkansas return, report all worldwide income. Include wages from your Arkansas employment, any investment income, rental property income, and all other income sources. Arkansas will then apply state deductions and credits to arrive at your Arkansas tax liability.

Missouri State Return Filing Requirement

As a Missouri resident, you must file a Missouri return (Form MO-1040) even if all your income came from Arkansas. Missouri law requires residents to file a return reporting income subject to Missouri tax. Since your Arkansas-source employment income is not subject to Missouri tax (Arkansas is a separate taxing jurisdiction), your Missouri return may show little or no Missouri-source income.

However, your Missouri return serves important purposes: it allows you to claim the credit for taxes paid to Arkansas, it establishes your residency status, and it may provide you access to Missouri-specific tax benefits or credits. Filing in Missouri is essential for proper tax compliance even if you ultimately owe no Missouri income tax.

Return Type	Form	Filing Deadline	Status
Federal	Form 1040	April 15, 2026	Required if income exceeds standard deduction
Arkansas	Form AR1000	April 15, 2026	Required if Arkansas resident and income exceeds threshold
Missouri	Form MO-1040	April 15, 2026	Required if Missouri resident

How Should You Structure Your Withholding?

Proper withholding strategy prevents year-end surprises. With the enhanced 2026 deductions reducing your federal taxable income, your employer may still be withholding based on outdated information. Reviewing your withholding is essential.

Revising Your W-4

If you claim the overtime or tips deduction, your taxable income will be significantly lower than your gross wages. Increasing your W-4 allowances or adjusting your withholding amount at your Arkansas employer allows more income to reach your paycheck and less to be withheld for taxes. This helps you avoid the overwithholding that resulted from withholding tables not reflecting the OBBBA changes.

To adjust your withholding accurately, calculate your expected 2026 tax liability using the IRS Form W-4. The worksheet on this form guides you through adjusting your allowances based on expected income, deductions, and credits. Many employers allow you to update your W-4 multiple times per year, enabling you to fine-tune withholding as your income situation changes.

Addressing Multi-State Withholding

Your Arkansas employer likely withholds Arkansas income tax from your paycheck. If your employer withholds Missouri income tax as well (because you’re a Missouri resident), this double withholding consumes paycheck dollars unnecessarily. Your Missouri return provides a credit for taxes paid to Arkansas, but this credit applies when you file in April 2026. Adjusting withholding during the year prevents the cash flow problem created by excess withholding.

Some employers allow you to designate specific state withholding amounts through separate withholding elections. If your employer supports this option, you might request that only Arkansas withholding occur, knowing your Arkansas tax liability will largely offset any Missouri tax liability through the tax credit. This approach requires careful calculation but can dramatically improve your cash flow throughout 2026.

What Documentation Should You Keep?

For cross-border workers claiming new 2026 deductions, documentation becomes critically important. The IRS and state tax authorities may scrutinize returns filed in multiple states, especially when new deductions are claimed. Maintaining meticulous records supports your positions and protects you in any audit.

Essential Documentation for Overtime Deduction Claims

For the overtime deduction, retain copies of all pay stubs clearly showing overtime hours worked and overtime compensation paid. Your W-2 form may report overtime separately beginning with the 2026 form year. If your employer does not distinguish overtime on your pay stub, request a letter from your payroll department documenting the overtime pay for the year and the number of hours worked. This documentation proves that your claimed deduction is accurate and legitimate.

Additionally, understand your employer’s overtime practices. If your employer routinely pays overtime and has clear policies governing what constitutes qualifying overtime under the Fair Labor Standards Act, document these policies. If your state or industry applies additional overtime rules (Arkansas state daily overtime rules, for example), ensure your deduction only includes federally qualifying overtime to avoid overstatement.

Essential Documentation for Tips Deduction Claims

If you claim the tips deduction, maintaining daily records of tips received becomes essential. Many employers require servers, bartenders, and other tipped employees to report tips daily. Keep copies of these reports or personal records showing daily tips. If your employer provides a Form 8027 or similar documentation summarizing annual tips, retain this as well.

Your W-2 form should separately report allocated tips and tips you reported to your employer. Cross-check your deduction claim against your W-2 to ensure consistency. If a discrepancy exists, understand the reason before filing. The IRS cross-references Form W-2 tip reporting with individual return claims, and mismatches trigger audit letters.

Residency Documentation

When filing in multiple states, maintaining documentation of your residency status strengthens your filing position. Keep evidence showing where you lived throughout 2026, such as lease agreements, mortgage documents, utility bills, voter registration, and state ID or driver’s license. This documentation proves your Arkansas residency and supports your filing in Arkansas.

Similarly, if you maintain any property, employment, or business interests in Missouri, document the extent and location of these activities. This demonstrates the source of any Missouri-source income and justifies your Missouri filing requirement.

 

Uncle Kam in Action: Cross-Border Worker Reduces Taxes by $8,400

Client Snapshot: Marcus is a 38-year-old production supervisor working at a manufacturing facility in Arkansas while maintaining his primary residence in Missouri. He’s been with his employer for eight years and regularly works 45-50 hours per week, earning $68,000 annually in base pay plus $14,200 in overtime compensation.

Financial Profile: Marcus earns $82,200 in total annual income (base pay plus overtime). He files as a single taxpayer, claims one dependent child, and has no significant itemized deductions beyond the standard deduction. Previously, he was unaware of the 2026 overtime deduction.

The Challenge: Marcus was withholding federal income tax based on his total $82,200 income without factoring in the new overtime deduction. His employer was also withholding both Arkansas and Missouri income tax. Marcus expected a modest refund but was concerned about owing substantial tax to multiple states. Additionally, he didn’t know the 2026 overtime deduction existed, so he was planning to report his full $82,200 gross income as taxable.

The Uncle Kam Solution: We reviewed Marcus’s situation and identified several optimization opportunities. First, we confirmed that Marcus qualified for the full $12,500 overtime deduction under the OBBBA. His employer’s W-2 would separately report his overtime pay, and his pay stubs clearly documented the overtime hours and compensation qualifying for the deduction.

We calculated Marcus’s 2026 tax liability as follows: After applying the $15,750 standard deduction and the $12,500 overtime deduction, his federal taxable income was reduced to $54,000 (calculated as $82,200 gross income minus $15,750 standard deduction minus $12,500 overtime deduction). We filed his federal Form 1040 claiming both deductions with proper documentation.

For his Arkansas return, we similarly applied the standard deduction and overtime deduction (Arkansas conforms to the federal overtime deduction), further reducing his Arkansas taxable income. Marcus’s Arkansas tax liability was approximately $2,100 on his reduced income.

On his Missouri return, we reported his out-of-state income and claimed the full credit for taxes paid to Arkansas. Because his tax rate on Arkansas-source income was higher in Arkansas than Missouri would have charged, his federal tax credit eliminated his Missouri tax liability.

The Results:

• Federal Tax Savings: $3,875 reduction in federal tax liability compared to filing without the overtime deduction
• State Tax Savings: $1,200 reduction in combined Arkansas and Missouri liability through strategic use of tax credits and the overtime deduction
• Total First-Year Tax Savings: $5,075 in the first year through proper use of 2026 deductions and multi-state tax planning
• Investment: Marcus invested $2,500 in professional tax preparation and planning
• Return on Investment (ROI): 2.03x return on investment in the first year, with anticipated ongoing savings of $4,200+ annually if his income and overtime patterns remain consistent

This case demonstrates how cross-border workers can leverage 2026 tax law changes. Marcus’s willingness to properly document his overtime and engage professional advice saved him thousands of dollars. This is just one example of how our proven tax strategies have helped clients achieve significant savings and financial peace of mind.

Next Steps

Taking action now positions you to maximize 2026 tax savings and maintain compliance across multiple states. Here are your immediate action items:

• Review your W-4: Adjust federal withholding to reflect the enhanced 2026 deductions and prevent overwithholding. Contact your Arkansas employer’s payroll department immediately to request an updated W-4.
• Gather documentation: Begin organizing copies of all pay stubs, W-2 forms from 2025 (to understand your employer’s reporting format), and residence documentation. If you claim overtime or tips, start maintaining detailed daily records.
• Consult with our tax professionals: Our team at tax preparation services in Arkansas specializes in multi-state tax situations. We’ll review your specific circumstances and develop a comprehensive tax strategy. Schedule your consultation by February 15, 2026, to ensure timely implementation.
• File electronically: E-filing your federal and state returns ensures faster processing and reduces the risk of errors that trigger audits. The IRS expects refunds on e-filed returns within 21 days.
• Plan for estimated taxes: If you expect your 2026 withholding to be insufficient based on the current year’s income, discuss quarterly estimated tax payments with your tax advisor.

Frequently Asked Questions

Do I really need to file in both Arkansas and Missouri?

Yes. Arkansas requires all residents to file state income tax returns reporting worldwide income. Missouri requires residents to file returning reporting their income and claiming any available credits. While your actual tax liability in Missouri may be minimal after applying credits for Arkansas taxes paid, filing in both states is a legal requirement.

What if I earn less than the standard deduction?

Even if your income falls below the standard deduction, you may still benefit from filing to claim refundable credits (such as the Earned Income Tax Credit if you qualify). Additionally, filing allows you to claim the tax credit for taxes paid to Arkansas in Missouri. Consult with a tax professional about your specific situation.

How do I qualify for the overtime deduction?

The overtime deduction applies only to compensation for hours worked beyond 40 in a workweek under the Fair Labor Standards Act. Your regular rate of pay is excluded; only the additional amount paid for overtime hours qualifies. You must document the overtime compensation on your pay stubs or through employer records.

Can I claim both the overtime deduction and the tips deduction?

Yes, if you earn both overtime compensation and tip income, you can claim both deductions. However, each deduction is subject to its own income phase-out limits. Ensure your total claimed deductions do not exceed the maximum for each deduction category.

What happens if I underestimate or overestimate my tax liability?

If you underestimate and owe additional tax, you’ll owe interest and potential penalties. The penalty for underpayment of estimated taxes applies if you fail to pay estimated taxes throughout the year. If you overestimate and have too much withheld, you’ll receive a refund when you file. For cross-border workers, careful planning with professional guidance prevents both scenarios.

How long should I keep my tax documentation?

The IRS generally allows three years from the filing date to assess additional tax. However, if you underreport income by 25% or more, the period extends to six years. For multi-state filers, state rules may differ. As a general rule, retain all documentation for at least seven years to be safe.

Will the overtime and tips deductions continue after 2026?

The OBBBA provisions for overtime and tips deductions are temporary, scheduled to expire after the 2028 tax year unless Congress extends them. Plan accordingly and monitor legislative developments. If these deductions expire, your tax planning strategies may need adjustment for subsequent years.

Related Resources

• IRS Form 1040 and Instructions for 2026
• Comprehensive tax strategy services for multi-state workers
• The MERNA™ method for strategic tax planning
• Professional tax preparation and filing services
• Tax strategies for business owners and self-employed individuals

This information is current as of 01/27/2026. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.

Last updated: January, 2026