Arizona State Income Tax: 2.5% Flat Rate and A-4 Withholding
Arizona taxes personal income at a flat 2.5%, one of the lowest rates among states that levy one. How Form A-4 sets your withholding percentage and what that means for your paycheck.
Arizona consolidated its graduated income tax brackets into a single flat rate of 2.5%, among the lowest of the states that tax personal income at all. The simplicity carries through to withholding, which works differently from most states.
A Percentage, Not Allowances
Most states ask employees to claim allowances or enter dependent amounts. Arizona asks you to pick a withholding percentage on Form A-4, applied directly to gross taxable wages each pay period. The available percentages range across several options, and employees who expect no Arizona tax liability for the year may elect zero withholding.
This is unusually transparent: you can see exactly what share of your wages goes to state tax. It also puts the responsibility on you to pick sensibly.
Picking the Right Percentage
The trap is choosing a percentage well below 2.5% because it produces a larger paycheck. Deductions and credits mean your effective rate is usually below the headline 2.5%, so a lower election can be correct, but selecting the minimum without doing the arithmetic reliably produces a balance due in April.
If you are unsure, start near the flat rate and adjust after you see how a full year works out. Submitting a new A-4 is straightforward and takes effect from the next payroll run.
What Else Appears on an Arizona Stub
Federal income tax, Social Security and Medicare apply as they do everywhere. Arizona has no state disability insurance deduction of the kind California and a few other states withhold, so the state side of an Arizona stub is typically a single line.
I explain the percentage options, the zero-withholding election and how the flat rate interacts with Arizona credits in my guide to Arizona state income tax for Online Paystub.
Filing
Full-year residents file Form 140. Part-year residents and nonresidents with Arizona-source income file the corresponding versions, allocating income to the period of residency and to Arizona sources. Check your A-4 election whenever your income changes materially, since a flat percentage that suited one salary may not suit the next.