An employer must withhold Arizona tax from wages paid for services performed within the state regardless of whether the employee is a resident or nonresident. However, there are exceptions to the general mandatory withholding requirements for nonresident employees temporarily performing services for their employer in Arizona. Although a nonresident employee may be exempt from Arizona income tax withholding, the individual has to file a nonresident Arizona income tax return if he or she meets the filing requirement.
An employer may not have to withhold Arizona tax from wages paid to a nonresident performing services in the state under the following circumstances:
- The employee is physically present in Arizona for less than 60 days in a calendar year for the purpose of performing a service benefitting the employer; and,
- The employer is an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in Arizona; or, a related entity has more than 50 percent direct or indirect common ownership.
Arizona Form A-4 provides an explanation of this exemption (including examples) in the Employer’s Instructions.
An employer may also not have to withhold Arizona tax from wages paid to a nonresident performing services in Arizona if the individual is allowed an income tax credit for taxes paid to his or her state of resident under Arizona Revised Statute (A.R.S.) § 43-1096. This exemption applies to nonresident employees who are residents of, or domiciled in, California, Indiana, Oregon or Virginia. For more information, see Arizona Form WEC.
In addition, an employer may not have to withhold Arizona tax from wages paid to a nonresident employee who is the spouse of a U.S. service member. This employee may claim an exemption from Arizona withholding on wages because of the following:
- The employee’s spouse is a member of the armed forces present in Arizona for compliance with military orders.
- The employee is present in Arizona solely to be with a spouse.
- The employee maintains a domicile in another state, which is the same state of domicile as the service member.
For more information, see Arizona Form WECM and Publication 705.
Other possible exemptions from withholding include:
- wages paid to nonresident employees of common carriers;
- wages paid for domestic services 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 agricultural employees, except such employees whose principal duties are operating any mechanically-driven device in such operations;
- wages or salary paid to a nonresident in the state on a temporary basis for the purpose of performing disaster recovery;
- wages paid to a nonresident of this state engaged in any phase or motion picture production.