Individuals who move to Arizona or live in the state temporarily also have tax filing requirements.
Nonresident individuals must file income tax returns in both Arizona and their home state. Although it may appear as though a nonresident taxpayer is paying taxes twice on the same income because of reporting requirements, credits allowed offset that income. A credit against Arizona income taxes is allowed for nonresidents not allowed a credit by their state of residence for taxes paid to Arizona if either:
- The other state does not tax Arizona residents on income derived from sources within that state.
- The other state allows Arizona residents credit for taxes paid on income subject to tax in that state and Arizona.
Even so, an individual’s state of residence may allow a tax credit for taxes paid to Arizona on the resident return filed with that state. Taxpayers can contact their state of residency for more information about tax credits allowed.
For more information on the Arizona non-resident credit, please see Arizona Form 309 and Arizona Income Tax Procedure (ITP) 08-1.
Part-year residents are also subject to Arizona tax on any income earned during the portion of the year they were an Arizona resident, and on any income earned from an Arizona source before moving to (or after leaving) the state. Individuals subject to tax by both Arizona and another state on the same income may be eligible as well for a tax credit on taxes paid to the other state.
As for out-of-state residents who worked in Arizona, individuals have to file a tax return reporting any income earned in the state that exceeds the amounts listed on the filing requirements stated in the instructions of the Arizona income tax returns. Individuals who do not meet these filing requirements, but have Arizona income tax withheld from their earnings, will have to file an Arizona return to obtain a refund of the withholding tax paid.
Arizona residents who have spouses in the military (including non-residents), and who want to file married filing separately, can file Form 140. The nonresident military spouse will file Form 140NR to show that spouse’s Arizona source of income and his or her community property share of the resident spouse’s income. Please visit ITR 97-3, ITR 14-1, ITR 93-20, and Pub 704, for additional information.
For more guidance in determining Arizona residency, please review Arizona ITP 92-1.
Subtraction of Active Service Compensation for National Guard Members and Reservists
For purposes of Arizona gross income, A.R.S. § 43-1022(11) provides a subtraction for active service compensation received by members of the Armed Forces, United States Reserves, and National Guard.
Arizona Income Tax Ruling ITR 12-2 (Dec. 10, 2012) states, “Federal law governs the National Guard and the United States Reserves. Therefore, the department will look to federal law to determine what constitutes active service as a member of the National Guard or the United States Reserves.”
While this is an accurate statement in context, it does not address other qualifying active service compensation that members may subtract as active service income. As ADOR Publication 704 explains, the subtraction includes all pay received by a National Guard member or reservist for services performed in each respective capacity, and includes compensation received by Arizona National Guardsmen activated in a state capacity.
ITR 12-2 will be reviewed and updated as needed, as part of ADOR’s continuing efforts to provide accurate and reliable guidance to taxpayers.