Arkansas Administrative Code
Agency 006 - Department of Finance and Administration
Division 05 - Division of Revenues
Regulation 1997-4 - Comprehensive Individual Income Tax Regulations
Rule 26-51-404 - GROSS INCOME GENERALLY
Rule 11.26-51-404(a)(1) - Annuities and Endowment Contracts

Amounts received as an annuity under an annuity or endowment contract are in general subject to tax to the extent that the aggregate amounts received by the annuitant exceed the amounts paid as a consideration of the contract.

An annuity contract charged upon devised property is taxable income to the annuitant whether paid by the devisee out of the income of such properties or other sources. The devisee is not required to return as gross income the amount of the proceeds paid to the donee annuitant and he is not entitled to deduct from his gross income any sums paid to the annuitant. The amounts received by an insured as a return of premiums paid by him under life insurance, endowment or annuity contracts, such as the so-called "dividend" of a mutual insurance company which may be credited against the current premium, are not subject to tax.

Example: Brown received $10,000.00 on a 10-year endowment contract which matured in 1993. He had paid premiums of $8,500.00 and had received dividends of $200.00 before the contract matured. Brown's cost to be recovered tax free is $8,300.00 ($8,500.00 minus $200.00).

The annuity starting date is the first day of the first period for which a benefit is received as a payment under the annuity contract or on the fixed date in the contract whichever is later.

Investment in the contract is the total aggregate premiums paid plus other consideration less amounts received prior to the annuity starting date which were not included in gross income.