15.26 Ark. Code R. 51-404(a)(1)
Amounts received as an annuity are subject to tax except receipts which are considered to represent a reduction or return of consideration paid. The proportionate part of each annuity payment which is excludable from gross income is a fraction. The numerator is the investment in the contract on the annuity starting date. The denominator is the expected return under the contract on that date. Investment in the contract is the total amount paid, less amounts received prior to the annuity starting date which were not included in gross income. The annuity starting date is the later of the first day a benefit payment is received under the annuity contract, or the fixed date in the contract.
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). If payments are received in installments, 83% of each payment (8,300 ÷ 10,000) will be a nontaxable return of consideration paid and the remaining 17% will be taxable.
15.26 Ark. Code R. 51-404(a)(1)