Arizona Withholding Tax

Information for Employers

An employer must withhold Arizona income tax from employees whose compensation is for services performed within Arizona. Arizona state income tax withholding is a percentage of the employee’s gross taxable wages.

Gross taxable wages refers to the amount that meets the federal definition of wages contained in U.S. Code § 3401. Generally, this is the amount included in box 1 of the employee’s federal Form W-2. Amounts considered to be wages for federal tax purposes are considered to be wages for Arizona income tax purposes. Amounts included in wages and subject to mandatory federal withholding are subject to mandatory Arizona withholding. Amounts excluded from wages and from mandatory federal withholding are excluded from mandatory Arizona withholding.

Refer to: Employer Withholding Filing Obligations for additional information on withholding Arizona income tax.

Employee Withholding Determination

The department will follow the determination of the IRS regarding a worker’s employment status as an employee or as an independent contractor. Refer to Arizona Withholding Tax Ruling (WTR) 16-4 to determine if a worker is an employee or an independent contractor for Arizona withholding tax purposes.

To compute the amount of tax to withhold from compensation paid to employees for services performed in Arizona, an employee must complete Arizona Form A-4, Arizona Withholding Percentage Election, within the first five days of employment. If the employee does not complete the form, the employer must withhold Arizona income tax at the rate of 2.7% until the employee elects a different withholding rate. Refer to the Employer’s Instructions for Arizona Form A-4 for further information.

To change the amount of Arizona income tax withheld, an employee must complete Arizona Form A-4 and submit to his or her employer to choose a different withholding percentage option.

Employment Excluded From Withholding

No Arizona income tax withholding shall be deducted or retained from:

Wages or salary paid to a nonresident employee of a common carrier.
Wages paid for domestic service in a private home.
Wages paid for casual labor not in the course of the employer’s trade or business.
Wages paid to part-time or seasonal employees whose service to the employer consist solely of labor in connection with the planting, cultivating, harvesting or field packing of seasonal agricultural crops, except such employees whose principal duties are operating any mechanically-driven device in such operations.
Wages or salary paid to a nonresident of this state who is:
- An employee of an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in this state, or of a related entity having more than 50% direct or indirect common ownership.
- Physically present in this state for less than sixty days in a calendar year for the purpose of performing a service that will benefit the employer or related entity. For purposes of determining the number of days of service in this state, days spent in the following activities are not included:
  - In transit.
  - Engaging in personal activities.
  - Participating in training or professional development activities or attending meetings that are not directly connected to the Arizona operations of the employer of related entity.
Wages or salary paid to a nonresident who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster period.
Wages or salary paid to a nonresident engaged in any phase of motion picture production when the employer has applied to the department for an exemption to the withholding provisions and the department has determined that the nonresident would be allowed a credit for taxes paid to another state or country against the Arizona taxes imposed on the income earned in Arizona.

NOTE:

A nonresident employee may elect to have Arizona income tax withholding deducted in the manner prescribed by section 43-401, subsection E and the employer shall withhold tax pursuant to that election.
The employer may elect to withhold tax from the nonresident employee before the sixty-day limitation has elapsed.
Wages and salary paid to a nonresident employee who is in this state solely for athletic or entertainment purposes are not exempt from Arizona income tax withholding.

Information for Employers, Employees, and Individuals

Electing an Arizona Withholding Percentage – Completing Arizona Form A‑4

All new employees subject to Arizona income tax withholding must complete Arizona Form A-4 within five days of employment. If the new employee fails to complete Arizona Form A-4 within 5 days of hire, the employer must withhold Arizona income tax at the rate of 2.7% until the employee elects a different withholding rate.

To elect an Arizona withholding percentage, an employee must complete Arizona Form A-4, Arizona Withholding Percentage Election, and submit it to his/her employer. Employees may request to have an additional amount withheld by their employer.

Existing employees may change their withholding amount by completing Arizona Form A-4 to change their previous withholding amount or percentage. Complete Arizona Form A-4 and provide it to your employer. Keep a copy for your records.

Employees who expect no Arizona income tax liability for the calendar year may claim an exemption from Arizona withholding. Employees claiming to be exempt from Arizona income tax withholding, complete Arizona Form A-4 to elect to have an Arizona withholding percentage of zero. Complete Arizona Form A-4 and provide it to your employer. Keep a copy for your records. This exemption must be renewed annually.

Arizona Residents Employed Outside of Arizona

Arizona residents who are working outside of Arizona may request that their employer withhold Arizona income taxes from their wages for work done outside of Arizona. If the out-of-state employer agrees to withhold Arizona income taxes from your out-of-state wages, complete Arizona Form A-4V and submit it to your employer. The amount withheld is applied to your Arizona income tax due when you file your Arizona income tax return.

Employees Requesting Reduced Withholding to Designate for Tax Credits

An employee may request that his or her employer reduce the Arizona income tax withheld from his or her wages by the amount the employee wishes to contribute to the following organizations:

Contributions to qualifying charitable organizations claimed on Arizona Form 321,
Contributions made or fees paid to public schools claimed on Arizona Form 322,
Contributions made to private school tuition organizations claimed on Arizona Form 323,
Contributions made to certified school tuition organizations claimed on Arizona Form 348, or
Contributions to qualifying foster care charitable organizations claimed on Arizona Form 352.

Complete Arizona Form A-4C and provide it to your employer. Keep a copy for your records.

If your employer agrees to this request, your employer will reduce your Arizona income tax withholding by the amount you designate, and will forward that amount to the charity you indicated.

Withholding on Pension and Annuity Payments

Individuals receiving regularly scheduled payments from pensions or annuities that are included in their Arizona gross income may elect to have Arizona income tax withheld from those payments. Complete Arizona Form A4-P and submit it to the payer of your annuity or pension to make this election

NOTE: You may use Arizona Form A4-P to elect to have Arizona income tax withheld if you receive regularly scheduled from any of the following:

Retired or retainer pay for service in the military or naval forces of the United States,
Payments received from the United States civil service retirement system from the United States government service retirement and disability fund,
Pensions,
Traditional Individual Retirement Accounts, or
Any other annuity.

You may NOT elect to have Arizona income tax withheld from the following:

Any payments NOT received at regular intervals (non-periodic payments),
Lump sum distributions,
Roth Individual Retirement Account distributions,
Veteran’s Administration annuities, or
Railroad Retirement pensions.

Withholding percentage options.
Rates are a percentage of gross taxable wages

Percentage rate
0.8%
1.3%
1.8%
2.7%
3.6%
4.2%
5.1%

Employee Withholding Exemption Certificate

Arizona wages paid to certain individuals are exempt from Arizona income tax withholding. Individuals who qualify for this include:

Native Americans,
Military Spouses, or
Nonresidents.

See the discussion below for details. If you believe you are an individual who is exempt from Arizona income tax withholding, complete Arizona Form WEC, Withholding Exemption Certificate, and provide it to your employer and keep a copy for your records.

Native Americans

If you are a Native American, your wages are exempt from Arizona income tax withholding if you:

Live on the reservation,
Work on that reservation, AND
Are an affiliated and enrolled member of the tribe for which that reservation was established.

NOTE: If you have any wages or other income earned off the reservation you may be subject to Arizona income tax on that income. If you are subject to Arizona income tax and you meet the Arizona filing requirements, you will need to file an Arizona income tax return.

For additional information, see the department’s ruling, Individual Tax Ruling (ITR) 96-4, Income Taxation of Indians and Spouses, available here:

Military Spouses

The federal Military Spouses Residency Relief Act provides tax relief for qualifying spouses of military personnel. Under this act, wages earned in Arizona by a qualifying spouse are not deemed to be income for work performed in Arizona. Those wages are exempt from Arizona income tax withholding.

If you or your spouse have any other income subject to Arizona income tax and you meet the Arizona filing requirements, you will need to file an Arizona income tax return. See Arizona Form 140NR for more details.

Nonresidents

If you are a nonresident working in Arizona, you may claim an exemption from Arizona income tax withholding if you are:

A resident of one of the following states: California, Indiana, Oregon, or Virginia, AND
Allowed to claim a tax credit against your Arizona tax for taxes paid to your state of residence on Arizona Form 140NR filed for the year.

For additional information, see Arizona Form 309, Credit for Taxes Paid to Another State or Country.

Arizona Withholding Rules & Statutes

Rules: These can be read online at the Arizona Secretary of State Website

A.A.C. R15-2b-101 Payment Schedule; Rates; Election by Employee
A.A.C. R15-2B-102 Employment Excluded From Withholding

Statutes: The statutes are available online at the Arizona State Legislature site

A.R.S. § 43-401 Withholding tax; rates; election by employee
A.R.S. § 43-402 Definition of “employer”
A.R.S. § 43-403 Employment excluded from withholding
A.R.S. § 43-404 Extension of withholding to military retirement pensions and to other annuities; definition
A.R.S. § 43-405 Extension of withholding to gambling winnings
A.R.S. § 43-406 Extension of withholding to premature withdrawals of state and local government contributions
A.R.S. § 43-407 Extension of withholding to unemployment compensation payments
A.R.S. § 43-408 Voluntary withholding on out-of-state wages
A.R.S. § 43-411 Employer entitled to address of employee
A.R.S. § 43-412 Returns of withholding to be filed with department
A.R.S. § 43-413 Statement of withholding to employees
A.R.S. § 43-414 Liability for failure to withhold
A.R.S. § 43-415 Withholding as trust fund for state
A.R.S. § 43-416 Failure to remit withholding; classification
A.R.S. § 43-417 Withholding without resort to legal action
A.R.S. § 43-431 Amounts withheld considered part payment of tax
A.R.S. § 43-432 Refund for excess withholding
A.R.S. § 43-434 Exemption in case of nonresident employees
A.R.S. § 43-433 Remedies for withheld taxes
A.R.S. § 43-435 Failure to collect and pay over tax; personal liability