Arizona collects state income tax on wages, retirement income, and investment gains
Yes, Arizona has a state income tax. If you live in Arizona or earn income there, you will owe state income tax on most types of income — wages from a job, self-employment income, interest, dividends, and retirement distributions. Arizona's Department of Revenue administers the tax, and you file your state return separate from your federal return.
The state income tax rate varies depending on your income level. Arizona uses a progressive tax system, meaning higher earners pay a higher percentage. Tax brackets change each year, so the exact rate you pay depends on when you file and your total income for that year.
Key Takeaways
- Arizona residents and anyone earning income in Arizona must file a state income tax return if their income exceeds the filing threshold for their filing status.
- Arizona uses progressive tax rates that range from the lowest bracket to the highest, with rates adjusted annually for inflation.
- You file your Arizona state return on a separate form from your federal return, typically using Form 140 or a variant depending on your situation.
- Certain types of income, such as Social Security benefits and some retirement account distributions, may be partially or fully exempt from Arizona state income tax.
- Arizona offers tax credits for things like dependent care expenses and education costs, which can reduce the amount of tax you owe.
How Arizona's tax brackets work
Arizona's income tax brackets are tiered, meaning different portions of your income are taxed at different rates. If you earn more money, only the income that falls into the higher bracket is taxed at the higher rate — not your entire income. The state adjusts these brackets each year to account for inflation.
For example, if you are single and earn $50,000, you do not pay the same rate on all $50,000. Your first dollars are taxed at the lowest rate, and as your income climbs, each additional dollar is taxed at progressively higher rates until you reach the top bracket that applies to your income level. The exact dollar amounts where each bracket begins change annually.
To find the current year's brackets that explore to you, check the Arizona Department of Revenue website or your tax forms. The brackets differ based on whether you file as single, married filing jointly, married filing separately, or head of household.
Types of income subject to Arizona tax
Arizona taxes most forms of income. Wages and salaries from employment are taxed. Self-employment income is taxed. Interest from savings accounts and bonds is taxed. Dividends from stocks are taxed. Capital gains from selling investments are taxed. Retirement account distributions, including withdrawals from IRAs and 401(k)s, are generally taxed.
However, some income is exempt or partially exempt. Social Security benefits are not taxed by Arizona, even though they may be taxed at the federal level. Military retirement pay has special treatment under Arizona law. Certain pension income may may have access to for an exemption if you meet age and income requirements. Some distributions from retirement accounts set up for education expenses may not be taxed.
If you receive income from multiple sources, you will need to report all of it on your Arizona return unless it falls into a specific exempt category. The Arizona Department of Revenue provides worksheets and instructions that explain which types of income are taxable in your situation.
Filing requirements and important date
You must file an Arizona state income tax return if your income exceeds a certain threshold. That threshold depends on your filing status and age. Generally, if you are required to file a federal return, you will also need to file an Arizona return. However, some people who do not owe federal tax may still owe Arizona tax, or vice versa.
The important date to file your Arizona return is the same as the federal important date — typically April 15 of the year following the tax year. If you file your federal return late or request an extension, you can request an extension for your Arizona return as well. Extensions give you until October 15 to file, though you still owe any tax due by April 15.
You can file your Arizona return by mail, online through the Department of Revenue's website, or through a tax professional. Many people file both their federal and state returns at the same time using tax software that handles both forms.
Tax credits that reduce what you owe
Arizona offers several tax credits that can lower your state income tax bill. A tax credit is different from a deduction — a credit reduces your tax dollar-for-dollar, while a deduction reduces the income that is taxed. Credits are more valuable because they directly cut the amount you owe.
Common Arizona tax credits include the dependent care credit (for expenses related to childcare while you work), the education credit (for certain education expenses), and the property tax credit (for renters and homeowners with lower incomes). Some credits are refundable, meaning if the credit is larger than the tax you owe, you receive the difference as a refund. Others are non-refundable, meaning they can only reduce your tax to zero.
To claim a credit, you must meet specific requirements and report it on your Arizona return. The instructions that come with your tax forms explain which credits you may be able to use and how to calculate them.
Withholding and estimated tax payments
If you work as an employee, your employer withholds Arizona state income tax from your paycheck, just as they withhold federal tax. The amount withheld is based on the W-4 form you complete when you start the job. If too much tax is withheld, you receive a refund when you file. If too little is withheld, you owe when you file.
If you are self-employed or have income that is not subject to withholding, you may need to make estimated tax payments to Arizona four times per year. These payments cover both federal and state tax. If you do not pay enough through withholding or estimated payments, you may owe a penalty when you file your return.
You can adjust your withholding at any time by submitting a new W-4 to your employer. If you expect a major change in your income or life situation, adjusting your withholding can help you avoid owing a large amount at tax time.
Frequently Asked Questions
Do I have to file an Arizona return if I only lived there part of the year?
If you lived in Arizona for part of the year and earned income there, you must file an Arizona return for that year. You report only the income you earned while you were an Arizona resident. If you moved to Arizona mid-year, you may file as a part-year resident, and your tax is calculated based on the income you earned during the months you lived there.
Is Social Security taxed in Arizona?
No. Arizona does not tax Social Security benefits. Even if your federal return includes Social Security income, you do not report it on your Arizona return. This applies to all Social Security retirement, survivor, and disability benefits.
What if I earned income in Arizona but live in another state?
You must file an Arizona return for the income you earned in Arizona, even if you live elsewhere. You will also file a return in your home state. Most states have agreements to prevent double taxation, so you typically receive a credit on your home state return for taxes paid to Arizona.
Can I file my Arizona return online?
Yes. The Arizona Department of Revenue offers online filing through their website. You can also file by mail or through a tax professional. Many commercial tax software programs support Arizona returns and can file electronically on your behalf.
What happens if I do not file an Arizona return when I owe tax?
The Arizona Department of Revenue can assess penalties and interest on unpaid tax. The longer you wait to file, the more interest accumulates. If you owe but cannot pay in full, you can contact the Department of Revenue to discuss payment plans or other options.