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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:
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:
For more information, see Arizona Form WECM and Publication 705.
Other possible exemptions from withholding include: