Arizona Payroll Taxes: A Guide for Employers

Two Arizona cities set their own minimum wage, which changes gross pay but is not a payroll tax. In 2026, Tucson's is $15.45 an hour for employees who work at least 5 hours per pay cycle in the city, and Flagstaff's is $18.35 an hour. See our Arizona payroll services page for the state and city minimum wage and paid sick time rules we build into each run.

Arizona's individual income tax is a single 2.5% rate for all income levels and filing statuses, as published by ADOR for tax year 2023 and later. Withholding works differently from the tax itself. Instead of a withholding table, each employee chooses a percentage of gross taxable wages on Arizona Form A-4.

How the A-4 election works

• Choices: 0.5%, 1.0%, 1.5%, 2.0%, 2.5%, 3.0% or 3.5% of gross taxable wages, plus an optional extra dollar amount each paycheck.
• New hires: each new employee completes Form A-4 within 5 days of employment. If they do not, you must withhold 2.0% until they elect a different rate.
• Changes: an employee can hand you a new A-4 at any time to change the percentage or the extra amount.
• Zero election: an employee who expects no Arizona income tax for the year can elect 0%. That election must be renewed every year, by giving you a new A-4 by February 15. If they do not renew, you withhold again.
• What "gross taxable wages" means: generally the amount in box 1 of the employee's federal Form W-2, that is, gross pay less pretax deductions such as the employee's share of health premiums.

Who you withhold for

• Employees working in Arizona: withhold from wages for work performed in Arizona, wherever your company is based.
• Nonresidents working in Arizona: withholding is required once a nonresident has worked in Arizona for 60 days in the year; employer and employee can agree to start sooner.
• Residents of California, Indiana, Oregon or Virginia working in Arizona may claim an exemption on Form WEC if they qualify for the credit for taxes paid to their home state. Certain Native American employees and qualifying military spouses can also claim exemption on Form WEC.
• Excluded work: Arizona lists some wages that are excluded from withholding, such as domestic service in a private home and casual labor outside your trade or business.

Your Arizona withholding account number is simply your federal EIN once ADOR registers you. There is no separate state withholding number to wait for.

UI tax is paid by the employer only; nothing is deducted from employee pay.

• New employer rate: 2.0% for at least 2 calendar years, unless you are a successor to another business's account.
• Taxable wage base: the first $8,000 of each employee's wages each calendar year. Keep reporting every employee's total wages after they pass $8,000; you just stop owing tax on the excess.
• After the new employer period: DES sets your rate each year with a reserve ratio: taxes you have paid in, minus benefits charged to your account, divided by your average taxable payroll. A positive ratio usually means a lower rate. For 2026, DES's rate chart runs from 0.03% for the strongest positive ratios to 8.36% for the most negative. DES sends a Determination of Unemployment Tax Rate (UC-603) at the start of each year, and you can view it in the Tax and Wage System from mid-January. Give a copy to whoever prepares your payroll so the right rate is used.
• New for 2027, rated employers: Arizona's new Unemployment Insurance Operating Fund starts January 1, 2027. Each quarter of 2027, an experience-rated employer pays 3.15% of its UI tax liability into the fund and its UI contribution is reduced by the same 3.15%, so the total due does not change. The fund portion cannot be claimed as a FUTA credit on Form 940. New and reimbursable employers are not included.
• Owners on payroll: DES treats corporate officers' wages as reportable, so an S corporation paying its owner a salary reports those wages. LLC members follow the LLC's federal tax election. Details are in our Arizona registration guide.

Example only: a new employer with one employee paid $50,000 evenly through 2026 owes UI tax on the first $8,000: $8,000 x 2.0% = $160 for the year. The employee earns $12,500 in the first quarter, which passes the $8,000 base, so all $160 is owed with the first quarter's report.

One form starts both accounts: the Arizona Joint Tax Application, Form JT-1. You file it with ADOR (online at AZTaxes.gov once you have a user account, or on paper), and ADOR sends a copy to DES. Each agency reviews it on its own.

• ADOR registers your EIN for withholding. Your EIN becomes your Arizona withholding ID.
• DES decides whether you are liable for UI tax and, if so, mails a Determination of Unemployment Insurance Liability (UC-016 or UC-015A) with your 8-digit UI account number, coverage start date and tax rate. DES cannot process the application without your federal EIN.
• Already withholding but no UI account? DES asks you to email a JT-1 to its Employer Registration Unit.

Who signs the JT-1, what it asks for, the UI liability tests and the three filing routes are covered step by step in our guide: How to Register for Arizona Payroll Taxes. Registering in other states too? See all state payroll tax registration guides.

New hire reporting is separate from the JT-1: report every new hire, rehire and returning employee to the Arizona New Hire Reporting Center within 20 days.

Withholding deposits (ADOR)

Your deposit schedule depends on your average Arizona withholding over the previous four quarters:

ADOR's Withholding Tax Procedure WTP 16-1 explains how to work out which schedule applies. If you owe $500 or more in a taxable year, you must pay by electronic funds transfer (EFT); missing that rule carries a 5% penalty on the amount not paid by EFT.

Returns and due dates

If a due date falls on a weekend or holiday, both agencies move it to the next business day. W-2s go to ADOR electronically. ADOR currently does not accept Form 1099-NEC electronically; if a 1099-NEC shows Arizona withholding, it goes on optical media or paper. DES encourages filing and paying in its online Tax and Wage System (TWS); if you file online, do not also send the paper UC-018.

1. Withholding a guess when there is no A-4. The rule is specific: 2.0% of gross taxable wages until the employee turns one in.
2. Letting zero elections roll over. A 0% election lasts one year. Without a new A-4 by February 15, withholding has to resume.
3. Skipping zero quarters. ADOR expects an A1-QRT even with no withholding, and DES expects a UC-018 even with no wages. Filing $0 wage reports for 8 straight quarters suspends the DES account, so tell DES when you start paying wages again.
4. Paying withholding by check after crossing $500. Once you owe $500 or more in a year, EFT is required, and the penalty for paying another way is 5%.
5. Missing the DES due date. A late UI report costs 0.1% of the quarter's total wages, at least $35 and up to $200, plus 1% interest per month on unpaid tax. DES notes you avoid the penalty by filing on time even if you cannot pay yet.
6. Using last year's UI rate. Load the new rate from each year's UC-603 before the first payroll of the year.
7. Assuming an out-of-state employee needs no Arizona withholding. Nonresidents working in Arizona become subject to withholding after 60 days, and residents of four states may be exempt only if they file Form WEC.
8. Waiting for a withholding number. Arizona does not issue one. Once ADOR registers you, you file under your EIN.

Arizona's rules are not long, but they run on two agencies' calendars, every quarter, with elections that expire and rates that change each January. If you would rather not track A-4s, deposit schedules and two sets of quarterly returns yourself, our team runs Arizona payroll start to finish in the payroll system you already use, files with ADOR and DES each quarter (including zero quarters) and handles agency notices. You stay the employer and approve every run. See Arizona payroll services, or talk it through on a quick consultation.

Paying only yourself through an Arizona S corp? See S corp payroll. Payday at risk right now? Start with emergency payroll support.