Arizona Wage and Payroll Tax Facts
June 16, 2023
Having to comply with unique state taxes and wage laws can make processing payroll doubly daunting. Here’s everything you need to know about these rates and laws for the state of Arizona.
The Grand Canyon State uses a minimum wage rate substantially higher than the rate required by the federal government, though the local minimum wage rate for Flagstaff is higher still. Additionally, Prima County and the city of Tucson have local minimum wage rates for local contractors too. Though, those rates vary based on whether or not the employer offers health benefits. The state also has a Paid Sick Leave program guaranteeing time off to employees within its borders.
When it comes to processing payroll, Arizona-based organizations must handle the following taxes in addition to those required by the federal government:
- Personal Income (a.k.a. State Income Tax)
- State Unemployment Insurance (SUI)
The below information was last updated June 16, 2023. It is not intended as legal or tax advice.
Arizona Minimum Wage Rates
|
Wage Type |
Flagstaff Rates |
Arizona Rates |
Federal Rates |
|
Minimum Wage |
$16.80 |
$13.85 |
$7.25 |
|
Tipped Minimum Wage |
$14.80 |
$10.85 |
$2.13 |
|
Actual Tip Credit |
$2.00 |
$3.00 |
$5.12 |
|
Wage Type |
Flagstaff Rates |
Arizona Rates |
Federal Rates |
|
Minimum Wage |
$16.80 |
$13.85 |
$7.25 |
|
Tipped Minimum Wage |
$14.80 |
$10.85 |
$2.13 |
|
Actual Tip Credit |
$2.00 |
$3.00 |
$5.12 |
Local Minimum Wage Rates for Contractors
In addition to the state-wide minimum wage rates above, Prima County and Tucson have unique minimum wage rates for contractors:
|
Location |
Wage Rate |
|
Prima County |
$10.73 (with health benefits of at least $1.32 an hour) |
|
Tucson |
$10.39* (with health benefits) |
|
Location |
Wage Rate |
|
Prima County |
$10.73 (with health benefits of at least $1.32 an hour) |
|
Tucson |
$10.39* (with health benefits) |
*Eligible contractors shall pay no less than 50% of the employee's health benefits premium.
These rates apply to the following employer types:
Prima County
- Service contracts of at least $5,000 annually to include facility and building maintenance, refuse collection and recycling, temporary employee services, janitorial and custodial services, landscape maintenance and weed control, pest control, and security.
Tucson
- Service contracts of at least $5,000 for a 12-month period to include facility and building maintenance, refuse collection and recycling, temporary employee services, janitorial and custodial, pest control, security and crowd-management services, and moving service.
Arizona State Income Tax (SIT) Rates
Until recently, Arizona’s SIT was progressive, meaning it had multiple tax rates based on the level of income an employee earned. However, in 2023 the state switched to a flat tax of 2.5%, regardless of income level.
|
Additional Arizona SIT Details |
|
|
Supplemental Withholding Computation |
N/A |
|
Valid Filing Status |
|
|
Exemptions* |
|
|
Form W-4 |
Arizona Form W-4 |
|
Reconciliation Frequency |
Annually |
|
Additional Arizona SIT Details |
|
|
Supplemental Withholding Computation |
N/A |
|
Valid Filing Status |
|
|
Exemptions* |
|
|
Form W-4 |
Arizona Form W-4 |
|
Reconciliation Frequency |
Annually |
*Employees may elect to have gross taxable wages withheld at one of these rates.
The following individuals are also exemptions for Arizona’s SIT:
- Persons performing domestic services in a private home
- Casual laborers performing labor outside the course of the employer's trade or business
- Certain part-time or seasonal employees working in agricultural labor (e.g., planting, cultivating, harvesting, or field packing seasonal crops)
The following types of residents, however, are exempt from withholdings:
- Residents who work wholly in another state
- Persons with no Arizona income tax liability
- Native Americans living and working on the reservation
Finally, the following types of nonresidents are also exempt from withholdings:
- Interstate carrier employees
- Nonresident military spouses
- Movie workers
- Residents of reciprocal states (see below)
- Short-term workers (working less than 60 days a year for certain employers)
Arizona State Unemployment Insurance (SUI) Rates
SUI provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined by state law) and meet the state’s eligibility requirements.
|
Arizona SUI Tax Details |
|
|
Taxable Wage Base |
$8,000 |
|
Employee Subject to Tax |
No |
|
Rates for Experienced Employers |
0.07% – 18.78% |
|
Rates for New Employers |
2.00% |
|
Effective Period |
Calendar Year |
|
Voluntary Contributions Allowed |
Yes; must be made by January 31 of the rate year |
|
Arizona SUI Tax Details |
|
|
Taxable Wage Base |
$8,000 |
|
Employee Subject to Tax |
No |
|
Rates for Experienced Employers |
0.07% – 18.78% |
|
Rates for New Employers |
2.00% |
|
Effective Period |
Calendar Year |
|
Voluntary Contributions Allowed |
Yes; must be made by January 31 of the rate year |
Arizona State Disability Insurance (SDI) Rates
SDI benefits are normally funded by employees through mandatory payroll deductions from each paycheck. Arizona, however, doesn't require employers to collect an SDI tax.
Miscellaneous Arizona Tax Information
Reciprocal Agreement(s)
Reciprocal agreements are when workers only pay taxes in the state where they live, not the state where they work. Arizona currently has reciprocal agreements with the following states:
- California
- Indiana
- Oregon
- Virginia
Residents of those states can request an exemption from Arizona tax withholdings by filing for a Withholding Exemption Certificate (WEC).
Paid Sick Leave (PSL)
The state of Arizona doesn’t require employers to collect PSL taxes but does have a program providing such leave to eligible employees:
|
Arizona PSL Details |
|
|
Covered Employees |
Full-time, part-time, and temporary employees |
|
Accrual Method(s) |
1 hour of leave for every 30 hours worked |
|
Annual Accrual Maximum |
|
|
Carryover Allowed |
Yes; up to the annual accrual maximum |
|
Probationary Period |
Yes; 90 days |
|
Frontloading Allowed |
Yes |
|
FAQ |
Arizona Paid Sick Time |
|
Arizona PSL Details |
|
|
Covered Employees |
Full-time, part-time, and temporary employees |
|
Accrual Method(s) |
1 hour of leave for every 30 hours worked |
|
Annual Accrual Maximum |
|
|
Carryover Allowed |
Yes; up to the annual accrual maximum |
|
Probationary Period |
Yes; 90 days |
|
Frontloading Allowed |
Yes |
|
FAQ |
Arizona Paid Sick Time |
Arizona Employer Registration
The agencies below can help with your state-based employer registration, including best practices, account numbers, and unemployment information. Contact the Department of Revenue for withholding tax topics and the Department of Economic Security for unemployment tax topics.
|
Registration Details |
Department of Revenue |
Department of Economic Security |
|
Phone |
(602) 255-3381 | (602) 771-6602 |
|
Online Registration |
https://www.aztaxes.gov | https://des.az.gov/content/applying-unemployment-insurance-tax-account-number |
|
Registration Form |
Form TPT-2 | Form JT-1 |
|
Registration Instructions |
Online and paper registrations are allowed. Account number(s) will be issued during online registration or within 10-14 days via mail. Separate account numbers for different tax types will be issued under the combined registration. |
|
|
Employer Self-Service Login |
https://www.aztaxes.gov | https://uitws.azdes.gov/App/Settings.aspx?EmployerLogin |
|
Registration Details |
Department of Revenue |
Department of Economic Security |
|
Phone |
(602) 255-3381 | (602) 771-6602 |
|
Online Registration |
https://www.aztaxes.gov | https://des.az.gov/content/applying-unemployment-insurance-tax-account-number |
|
Registration Form |
Form TPT-2 | Form JT-1 |
|
Registration Instructions |
Online and paper registrations are allowed. Account number(s) will be issued during online registration or within 10-14 days via mail. Separate account numbers for different tax types will be issued under the combined registration. |
|
|
Employer Self-Service Login |
https://www.aztaxes.gov | https://uitws.azdes.gov/App/Settings.aspx?EmployerLogin |
Additional Arizona Payroll Tax Resources
This information is provided as a courtesy and may be updated at any time. It is not intended as legal or tax guidance. If you have questions or concerns, we encourage you to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
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