Apply Arkansas HB1001 (2026 1st Extraordinary Session) individual income tax rate cuts

[DTrim99]

Summary

Implements Arkansas HB1001 (2026 First Extraordinary Session) Section 1, which reduces the individual income tax rates effective for tax years beginning on or after January 1, 2026. Closes #8244.

Corporate rate changes in Sections 2–3 of the bill are out of scope for this PR.

Statutory authority

A.C.A. § 26-51-201(a)(4) as amended by HB1001.

Bill schedules

(a)(4)(A) — Net income ≤ $94,700

Bracket	Threshold	Rate (2026)	Rate (2025)
1	$0	0%	0%
2	$5,600	2%	2%
3	$11,200	3%	3%
4	$16,000	3.4%	3.4%
5	$26,400	3.7%	3.9%

(a)(4)(B) — Net income > $94,700

Bracket	Threshold	Rate (2026)	Rate (2025)
1	$0	2%	2%
2	$4,701	3.7%	3.9%

(a)(4)(C) — Bracket adjustment for net income $94,701 – $97,600

A new bracket-adjustment schedule that reduces the (a)(4)(B) tax due by amounts ranging from $290 (at $94,701 – $94,800) down to $10 (at $97,501 – $97,600), in $10 / $100 steps.

Files changed

• policyengine_us/parameters/gov/states/ar/tax/income/rates/main/rate.yaml — added 2026-01-01 entries; top bracket rate 3.9% → 3.7%.
• policyengine_us/parameters/gov/states/ar/tax/income/rates/main/reduction.yaml — added 2026-01-01 entries to all 35 active brackets; deactivated 3 brackets that no longer apply.
• policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_income_tax_before_non_refundable_credits_indiv.yaml — added 10 integration tests covering all 2026 brackets, the (a)(4)(A)/(B) boundary, and the bracket-adjustment range.
• changelog.d/ar-hb1001-2026-rates.changed.md — changelog fragment.

Reduction-amount derivation

PolicyEngine's AR formula is tax = top_rate * income - reduction. Under the bill's marginal schedule the reduction at high income equals $4,700 × (3.7% − 2%) = $79.90. The reduction at each (a)(4)(C) row is the bill's bracket-adjustment plus this $79.90 base — e.g. $290 + $79.90 = $369.90 at $94,701; $10 + $79.90 = $89.90 at $97,501; $0 + $79.90 = $79.90 at $97,601 and above.

For the (a)(4)(A) brackets the reduction is the cumulative impact of the lower marginal rates: $112 / $224 / $288 / $367.20 at thresholds $5,600 / $11,200 / $16,000 / $26,400 respectively.

Test plan

• CI passes
• New 2026 YAML tests verify low-income, mid-income, boundary, bracket-adjustment, and high-income cases
• Existing 2022 / 2023 tests still pass (no rate or threshold changes for those years)

[codecov]

Codecov Report

✅ All modified and coverable lines are covered by tests.
✅ Project coverage is 70.43%. Comparing base (623a65c) to head (24a9cad).
⚠️ Report is 162 commits behind head on main.

Additional details and impacted files

@@             Coverage Diff              @@
##              main    #8245       +/-   ##
============================================
- Coverage   100.00%   70.43%   -29.57%     
============================================
  Files           12     4737     +4725     
  Lines          173    68915    +68742     
  Branches         4      348      +344     
============================================
+ Hits           173    48541    +48368     
- Misses           0    20374    +20374     

Flag	Coverage Δ
unittests	70.43% <ø> (-29.57%)	⬇️

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[DTrim99]

PR Review

Cross-checked the parameter values against the official HB1001 PDF (Section 1, A.C.A. § 26-51-201(a)(4)) and re-derived the reductions algebraically. The implementation is correct.

Verification

Check	Result
(a)(4)(A) brackets & rates ($0/$5,600/$11,200/$16,000/$26,400 at 0/2/3/3.4/3.7%)	Match bill
(a)(4)(B) brackets ($0/$4,700 at 2/3.7%)	Match bill
(a)(4)(C) bracket-adjustment table — all 30 rows ($94,701→$290 down to $97,501→$10, $97,601→$0)	Match bill
Base high-income reduction = $79.90 = 0.037·X − (0.02·4,700 + 0.037·(X−4,700))	Algebraically correct
(a)(4)(A) reduction at $26,400 = $367.20 (cumulative $112 + $144 + $353.60 of lower-rate savings)	Correct
All 10 new test outputs	Independently re-derived, all match
References in rate.yaml and reduction.yaml metadata	Added, point to authoritative bill PDF
Changelog	Present, changed type appropriate
CI	Passing (only codecov/project soft-fail)

Critical (Must Fix)

None.

Should Address

None.

Suggestions

1. Boundary discontinuity at $94,700 ↔ $94,701 — the (a)(4)(C) $290 adjustment causes tax to decrease by $2.66 ($3,136.70 → $3,134.04) when crossing the threshold. This is by the bill's design (the adjustment is calibrated to smooth what would otherwise be a ~$287 jump under raw (a)(4)(B)). The boundary tests at $94,700 / $94,701 / $97,600 / $97,601 already cover this, but a brief note in the test file or reduction.yaml description explaining that the slight reverse-step is intentional could help future maintainers.

2. Optional extra boundary tests — coverage at the exact (a)(4)(A) bracket edges ($5,600, $11,200, $16,000) would round out the new test suite, though existing in-bracket tests already exercise the cumulative reductions.

3. Pre-existing rounding (out of scope) — the 2025 high-income reduction is $89 but should be $89.30 (analogous to the new $79.90 for 2026). Not introduced by this PR; flagging only because the new value sets a more precise precedent.

Recommendation

Approve. Math, references, and tests are solid.

[hua7450]

Program Review — PR #8245 (Arkansas HB1001 2026 individual income tax rate cuts)

Source Documents

• PDF: Arkansas HB1001 (2026 1st Ex. Session) (4 pages — Section 1 spans pp. 1-3)
• Year: 2026
• Scope: PR changes only (rate.yaml + reduction.yaml + test YAML + changelog)

Critical (Must Fix)

None.

Should Address

1. Test coverage gap — intermediate (a)(4)(C) rows untested: The (a)(4)(C) bracket-adjustment table has 30 rows from $94,701 to $97,501 (plus a $97,601+ catch-all). The PR tests only row 1 ($94,701) and row 30 ($97,501-$97,600), leaving the 28 intermediate rows untested. A typo in any intermediate row would slip through. Suggest 2-3 mid-table spot checks (e.g., $95,500, $96,500, $97,000). — policyengine_us/tests/policy/baseline/gov/states/ar/tax/income/ar_income_tax_before_non_refundable_credits_indiv.yaml

Suggestions

1. Reference page number polish: Both new HB1001 references use #page=1, but the rate table is on p. 2 and the bracket-adjustment table spans pp. 2-3. Page 1 is just the bill caption. Updating to #page=2 would land readers on the relevant table. Zero functional impact. — rate.yaml, reduction.yaml
2. Inert (.inf) brackets inconsistent: After the (a)(4)(C) range ends, the next ~14 unreachable .inf brackets in reduction.yaml are not updated for 2026 — they carry forward the old $89 amount from 2025 while the bottom-of-(a)(4)(C) row uses $79.90. Zero functional impact since these brackets are unreachable, but the file is internally inconsistent. Cleanup suggestion. — reduction.yaml
3. Pre-existing stale subsection in inherited refs (not introduced by this PR): Older references at the top of both YAML files still cite (a)(1)(A), the pre-2024 subsection. Author could refresh while in the file, but not required.
4. Test case naming inconsistency (cosmetic): 10 new test cases use AR HB1001 2026 - <desc> naming, while existing 2025 cases use Case N, description. style. Not a violation; cosmetic only.

PDF Audit Summary

Category	Count
Confirmed correct	40 (all audited 2026-01-01 entries)
Mismatches (code-path confirmed + visually verified)	0
Mismatches rejected (code-path cleared)	0
Unmodeled items	0
Pre-existing issues	1 (stale (a)(1)(A) ref)

Validation Summary

Check	Result
Regulatory Accuracy	0 issues — bill correctly reflected
Reference Quality	1 polish (page number)
Code Patterns	2 minor (inert brackets, stale subsection)
Test Coverage	1 medium gap (intermediate (a)(4)(C) rows)
PDF Value Audit	0 mismatches / 40 confirmed
CI Status	Mostly passing — 1 pending check, codecov/project fail (likely PR-level threshold, not real failure)

Mathematical Verification (independently re-derived)

• $4,700 × (3.7% − 2%) = $79.90 ✓ (high-income base reduction)
• (a)(4)(A) reductions at $5,600/$11,200/$16,000/$26,400 = $112/$224/$288/$367.20 ✓ (cumulative marginal-tax derivation)
• (a)(4)(C) row 1: $290 + $79.90 = $369.90 ✓
• (a)(4)(C) row 30: $10 + $79.90 = $89.90 ✓
• All 10 new test expected values match parameter-derived results within 0.003 (margin 0.01) ✓

Review Severity: APPROVE

No critical issues. PR is narrow, accurate, well-cited, and mathematically verified.
The "Should Address" item (test gap) and suggestions are nice-to-have cleanups.

Next Steps

To apply suggested cleanups: /fix-pr 8245