Arizona has several taxes that all employers must pay attention to. But there are only two payroll taxes to worry about:
- Individual Income Tax at a rate of 2.5%
- Unemployment Insurance Tax at a flat rate of 2.0% for new employers
These rates are fairly low compared with other states, especially the neighboring California with its income tax rate of up to 12.3%. Or even New Mexico’s relatively low income tax rate cap of 4.9%.
But taxes are still a pain to navigate. We’re here to help simplify the details you need to know about these two taxes, as well as the state’s other important tax requirements.
Let’s dive in.
Arizona State Income Tax
Once upon a time, Arizona levied a graduated tax rate based on income and filing status. But in 2023, the state did away with that cumbersome method. Lucky you!
Now, all you have to worry about is the state’s 2.5% income tax rate.
When you onboard your first employee, you’ll need to provide them with a Form A-4, Employee’s Arizona Withholding Election. They should fill it out and return it within five days of their hire date.
If the employee does not return the form, you must withhold taxes at a rate of 2.0% until they do submit that Form A-4.
The Grand Canyon State requires employers to remit all withheld taxes by specific due dates. The day your employees’ withheld taxes are due depends on how much you withhold.
You should remit withheld taxes to the state:
- Monthly, semi-weekly, or on the next business day if your previous four-quarter withholding average is more than $1,500
- Quarterly if your previous four-quarter withholding average is more than $200 but less than or equal to $1,500
- Annually if your previous four-quarter withholding average is less than $200
If you don’t have a previous four-quarter withholding average since you’re a new employer, you’ll default to making withholding payments every quarter. You can learn more about which withholding schedule applies to you by reading the Arizona Withholding Tax Procedure.
Arizona Unemployment Insurance Tax
Like so many other US states, Arizona uses a reserve ratio system to determine how much an employer must set aside in unemployment insurance taxes. This basically means that your tax rate is determined by:
- How much money is in your company’s unemployment insurance account
- How much money you’ve had to pay out for unemployment claims
- The size of your annual taxable payroll
But for new employers who don’t have an established account, Arizona levies a flat unemployment insurance tax rate of 2.0%. You’ll pay this rate for at least two years. After that, your rate may go up or down based on your reserve ratio.
The taxable wage base in Arizona is the first $8,000 of an employee’s wages, although you’ll need to keep reporting wages after that.
How to Submit Your Arizona Payroll Taxes
Before you run your first payroll, you’ll need to register your FEIN with the Arizona Department of Revenue (ADOR). To do this, you’ll first:
- Create a user account on AZTaxes.gov
- Complete the Arizona Joint Tax Application (Arizona Form JT-1)
Submitting the AZ Form JT-1 is also the first step in registering with the Arizona Department of Economic Security. This is where you’ll register to withhold and pay unemployment insurance taxes.
Once you’ve registered with both of these state departments, you’ll be all set to withhold and remit unemployment and state income taxes.
The Official Resources for Arizona Payroll Taxes
Running payroll for the first time can be nerve-wracking. Especially if you’re trying to do it manually—which we don’t recommend. More on that in a moment.
But whether you’re running payroll manually or not, it’s always a good idea to check the state’s official resources before you dive in. Here’s a quick roundup:
- Arizona Withholding Tax
- Employer Withholding Filing Obligations
- Withholding Exceptions
- Withholding FAQs
- Business Record Keeping
- Arizona Unemployment Tax and Wage System
- Calculating Unemployment Taxes
Now you’re ready to run your first payroll. But before you try to slog through it without help, take a look at how easy it is to do payroll with a software service.
The Easiest Way to Submit Your Arizona Payroll Taxes (Automatically)
Payroll providers like Intuit QuickBooks, BambooHR, and Gusto do something that’s almost magical. They automate a bunch of your state and federal payroll tasks. And anything they can’t automate, they help you remember to do.
Take BambooHR, for example. When you use BambooHR’s Payroll add-on, all you have to do is enter a few key details into the system to get your taxes filed for you, including:
- Federal Employee Identification Number (FEIN)
- State and Local Tax IDs, if applicable
- Effective Date
- Tax Payment Frequency
- Withholding forms for employees
You can even integrate your state tax account with BambooHR if you want to make things even more seamless.
Once you’ve got all that in there, the BambooHR payroll system will automatically calculate, file, and remit taxes on your behalf.
All of the best payroll software services do the same thing. We recommend investing in payroll software the moment you decide to hire your first employee.
Check out our detailed breakdown of the best payroll software to find the right match for you.
