Employers withholding income tax for employees in Arizona must register their Employee Identification Number (EIN) with the Arizona Department of Revenue (ADOR) to file withholding returns. They can do so by completing the Arizona Joint Tax Application here.
Other withholding forms employers need to be aware of include:
Form A1-APR, Annual Payment Withholding Tax Return –
ADOR will notify the employer if he or she qualifies to use this form. If so, the employer does not have to file Forms A1-QRT, A1-R or A1-WP.
The filing due date for this form is January 31 for the close of the calendar year in which payments were made. If January 31 falls on a Saturday, Sunday or legal holiday, the return is considered timely if filed by the next business day.
To obtain an extension of time to file, taxpayers can send a completed A1-APR form and the required annual withholding payment to ADOR on or before the due date of the return.
Form A1-QRT, Quarterly Withholding Tax Return –
Employers use this form if they are required to make Arizona withholding payments on a quarterly, monthly, semiweekly or one-banking day basis. They will also use it if there are monthly payors who incurred a one-banking day payment obligation during the quarter.
The filing due date for this form is April 30 for the first quarter; July 31 for the second quarter; October 31 for the third quarter; and January 31 for the fourth quarter. An employer required to make withholding payments on a quarterly basis will enter the quarterly liability in Part II, Section A, and Part III, as instructed on the form. Refer to the form instructions for further information.
Also, an employer with zero withholding tax liability for the quarter has to file an A1-QRT. If this is a final return, the employer will check the withholding account cancellation box on page one of the form and indicate the reason for the cancellation on page two of the form.
Extended Form A1-QRT due dates are available to taxpayers who have made every payment on time. Employers who have made every payment on time during the preceding calendar quarter may have 10 additional days to file their A1-QRT (May 10 for first quarter; August 10 for second quarter; November 10 for third quarter; and February 10 for fourth quarter). If any due date falls on a Saturday, Sunday or legal holiday, the return is considered timely if filed the next business day.
Form A1-R, Withholding Reconciliation Tax Return –
Employers will use this form if they file Form A1-QRT. This form is filed annually to reconcile an employer’s withholding liability and withholding payments for each quarter of the year with the total amount withheld as shown on federal Forms W-2, W-2c, W-2G and 1099-R. It is also used to transmit the state copies of these federal forms.
The filing due date for this form is also January 31 of the year following the close of the calendar year for which payments were made. If January 31 is a Saturday, Sunday or legal holiday, the return is considered timely if filed by the next business day.
To obtain an extension of time to file Form A1-R, send a completed Form A1-R EXT to ADOR on or before the due date of the return.
Please note: The extension of time to file Form A1-APR or Form A1-R applies to federal Forms W-2, W-2c, W-2G and 1099-R. The state copies of the federal forms are an integral part of the reconciliation required on these forms. The extension granted to file the forms applies to the state copies of the federal forms.
Withholding Filing Frequency
To determine filing frequency, employers want to consider the following:
- Quarterly Basis Payments: An employer must make Arizona withholding payments on a quarterly basis if the average amount of Arizona income taxes withheld during the preceding four calendar quarters does not exceed $1,500.
- More Frequent Payments: An employer must make Arizona withholding tax payments at the same time as federal withholding deposits if the average amount of Arizona income taxes withheld during the preceding four calendar quarters exceeds $1,500.
Arizona law requires an employer, at the beginning of each new quarter, to compute the average Arizona withholding tax liability for the preceding four calendar quarters. This calculation is performed to determine the correct Arizona withholding payment schedule.
Overall, an employer who has four full consecutive calendar quarters of Arizona withholding liability historical data must use the regular withholding payment schedule computation. An employer with four full consecutive calendar quarters of Arizona withholding liability historical data must use the alternate withholding payment schedule computation. Refer to the Arizona Withholding Liability/Payment Schedule section on Form A1-QRT instructions for further information.
Now, an employer can elect not to withhold state tax in December; however, the employer must first notify each employee and then file Form A1-E, Employer’s Election to Not Withhold Arizona Taxes in December. Form A1-E must be filed with ADOR by July 1 of the year to which it will apply. This election will apply to all employees.
Employee Withholding Determination
To determine if a worker is an employee or an independent contractor for Arizona withholding tax purposes, employers will refer to Arizona Withholding Tax Ruling WTR 933. The determination by the IRS regarding a worker’s employment status (employee or independent contractor) controls the determination 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 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 at the statutory minimum rate depending on the amount of the employee’s annual compensation. Employers will refer to the Employer’s Instructions for Form A-4 for further information on employer responsibility.
To change the amount of Arizona income tax withheld, an employee will also complete Form A-4 to choose a different withholding percentage option.
For Arizona resident employees working outside of Arizona, state law requiring mandatory withholding from paid compensation does not apply. Arizona withholding from the payment of compensation to an Arizona resident employee who performs services outside of Arizona is voluntary. The employee and employer must complete Form A-4V, Voluntary Withholding Request for Arizona Resident Employed Outside of Arizona.
Overall, employee compensation withholding and non-payroll withholding (on federal Forms W-2G and 1099-R) may be reported on the same withholding return.
If an employee is Native American, the employer does not have to withhold Arizona income tax from paid compensation. Instead, if the employee meets the criteria listed on Form WECI, the employee must complete the form.
Also, Arizona withholding from an amount paid as a pension or annuity is voluntary. The recipient may request voluntary Arizona income tax withholding by completing Form A-4P, Annuitant’s Request for Voluntary Arizona Income Tax Withholding, or by sending a letter to the payor of the pension or annuity. The recipient may change the amount of tax withheld, or terminate withholding by the same methods. Taxpayers can refer to Arizona Withholding Tax Ruling WTR 99-2 for more details.
Withholding and Optical Media
Employers who file state copies of federal forms W-2, W-2c, W-2G and 1099-R may do so on paper or optical media. ADOR encourages, but does not require, the employer to use optical media filing for 250 or more federal forms. For more information, including specifications, regarding optical media filing, employers can refer to Publication 701.
Withholding Overpayment Refund
An employer with a withholding overpayment will list that on line 3 of Form A1-QRT or on line 10 of Form A1-APR. The overpayment will be offset against any outstanding liability, and then a refund of any balance will be sent automatically.
W-2 Adjustment Verification
If ADOR receives an Arizona income tax return and finds the Social Security Number (SSN) and/or name on the W-2 form do not match the identification number and/or name on the tax return, ADOR will need to verify the withholding amount shown on the return before issuing a tax refund.
To accomplish the verification, ADOR will need the following information:
- A copy of the taxpayer’s SSN card or letter from the Social Security Administration that identifies him or her.
- Additional identifying information that verifies the taxpayer. ADOR will determine if this information is sufficient to allow a refund.
A taxpayer can also request each employer to complete an Employer Affidavit. To initiate the request, the taxpayer will:
- Complete the top employee authorization portion of the Employer Affidavit; and,
- Submit the form via mail to:
Arizona Department of Revenue
PO Box 29099
Phoenix, AZ 85038-9099
Or email it to [email protected].
The department will then send the Employer Affidavit to the taxpayer’s employer (s) for wage and withholding verification. Upon receiving the information from the taxpayer’s employer (s), ADOR will complete the review and contact the taxpayer with the determination.
If the taxpayer agrees with the changes on the Tax Correction Notice (TCN) and a tax balance is due, the taxpayer will remit payment with the top portion of page 1 of the TCN to:
Arizona Department of Revenue
PO Box 29085
Phoenix, AZ 85038-9085