Comprehensive Guide to Payroll Taxes in Arizona

Employers have to navigate a variety of regulations and requirements to ensure proper payroll withholding in each US state. This guide serves as an introduction to what employers need to pay and withhold from payroll in Arizona, including unemployment insurance, personal income tax, and workers’ compensation. 

Business and Payroll Taxes

Employers in Arizona must manage business and payroll taxes, including federal payroll FICA taxes (Medicare and Social Security). Arizona has a flat tax system with a single income tax rate, and employers must withhold taxes from employees paid for work done in Arizona. Exceptions exist for remote workers and non-resident workers.

New Employee Requirements

New employees must fill out Arizona Form A-4 within five days of employment. Employers must report new hires to the Arizona Department of Economic Security's New Hire Reporting Center within 20 days.

State Unemployment Insurance Tax (SUI)

Arizona's SUI is part of a program under the Social Security Act, administered by the US Department of Labor and Arizona's Department of Economic Security (DES). It provides temporary benefits to eligible unemployed workers. DES determines unemployment insurance tax rates and taxable wages annually.

In Arizona, the responsibility for paying unemployment insurance typically falls on employers who must make contributions to the state’s unemployment insurance fund based on their employees’ wages. UI is not usually withheld from the employee’s wages in Arizona, but the cost falls on the shoulders of employers alone. Employers can make online payments through the state online portal.

Filing and Payment Methods

Unemployment insurance taxes can be paid via the Arizona Unemployment Tax and Wage System (EFT). Arizona withholding tax can be paid electronically using AZTaxes or AZFSET. Employers can also mail unemployment insurance tax payments to DES - Unemployment Tax, PO Box 52027, Phoenix, AZ 85072-2027, and withholding tax payments to the Arizona Department of Revenue, PO Box 29009, Phoenix, AZ 85038. Additionally, unemployment insurance tax payments can be made via phone using the Arizona Unemployment Insurance Tax IVR system.

For more information, you can visit the Arizona Department of Economic Security online.

Withholding personal income tax from your Arizona employee

Employers must withhold state income tax from employees working in Arizona. The tax funds state services, including public safety, healthcare, and education. As of 2023, the tax rate is 2.5% of the employee's gross taxable wages. Employers must register their EIN with ADOR using Form JT-1, and employees must fill out Form A-4 and select the tax withholding percentage. The amount can be paid through Arizona’s online portal.

For more information on paying taxes in the state, visit the Arizona Department of Revenue.

Tax Rates and Responsibilities

Employers are responsible for under-withholding penalties. Employees can choose a withholding rate from 0.5% to 3.5% on Form A-4, with a default state withholding rate of 2% if no Form A-4 is filed.

Payroll Tax Due Dates in Arizona

Unemployment Tax and Wage Reports (Form UC-018) are due quarterly, with deadlines on April 30, July 31, October 31, and January 31. The late report penalty is 0.1% of total wages paid that quarter, with a minimum of $35 and a maximum of $200. Unpaid taxes incur 1% interest per month.

Arizona Withholding Tax Due Dates

The filing frequency for Arizona withholding tax depends on the amount withheld:

Late payment penalties can reach up to 25% of taxes due.

Paying your Arizona workers’ compensation

Employers in Arizona must be aware of their obligations regarding workers' compensation, a form of insurance that provides medical benefits and wage replacement to employees who suffer job-related injuries or illnesses.

As an employer, you must carry workers’ compensation insurance to cover your employees in case of such incidents. Failure to provide the necessary coverage can lead to severe penalties.

By complying with the state’s workers' compensation laws, you ensure the well-being of your employees and protect your business from potential legal and financial repercussions. Workers’ compensation is typically purchased from a qualified commercial carrier in the state, and the Arizona claims division can help you find a qualified commercial carrier.

It’s important to verify that your workers’ compensation insurance complies with state regulations.

Simplify US payroll tax compliance with Deel

While this guide provides essential information on Arizona payroll taxes, federal and state requirements extend beyond what is covered above. To streamline the process and ensure full compliance, companies can turn to Deel.

Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can simplify your US payroll processes and ensure compliance with state regulations.