Identifying Other Taxable Income

For individuals who moved to Arizona during the tax year, there are a few things they must know when filing taxes (For more information on moving to Arizona, click here). First, Arizona law states that residents are taxed on the same income they report for federal purposes, including income earned and retirement from other states. However, there are some exceptions allowed under Arizona tax law. To learn more, please see Determining Filing Status for Non-Residents, Part-Year Residents and Military.

Those individuals taxed on income earned in another state and in Arizona may earn a credit for taxes paid. Please see Arizona Form 309 instructions or Income Tax Ruling (ITR) 06-1 for more information.

Additionally, as a general rule, the same portion of an individual’s pension is taxable for Arizona purposes as it is for federal. Arizona does allow, however, a subtraction for pensions from the state of Arizona, its political subdivisions or from U.S. government service, including the U.S. military. The amount of the subtraction can be found on the instructions of the appropriate Arizona individual tax filing form.

Beginning with tax year 2021, if you received benefits, annuities, and pensions as retired or retainer pay of the uniformed services of the United States, you may subtract 100% of the amount you received. If both you and your spouse each received such income, each spouse may subtract 100% of the amount received.

In regards to capital gains, Arizona has no special arrangement. Capital gains included on an individual’s federal adjusted gross income are included on his or her gross income and taxed at the individual’s regular tax rate.

Finally, individuals who earn unemployment income must also pay tax for both federal and Arizona purposes.

For those individuals who earned income from government bonds, Arizona allows a subtraction for interest on U.S. government obligations included in Arizona gross income. The state requires that municipal bond interest from other states be added as well to Arizona gross income. See Income Tax Ruling (ITR) 06-1, Income Tax Ruling (ITR) 96-2 and Income Tax Ruling (ITR) 96-3 for more information on Arizona’s individual income tax rulings.