Payroll tax in Arizona: What employers need to know [Updated 2024]

Taxes. They’re one of life’s certainties, and whether you’re running a large corporation or small business, you have to worry about your business’s taxes and the payroll taxes of your employees. In addition to federal payroll FICA taxes, including Medicare and Social Security taxes, employers are responsible for complex Arizona state payroll taxes. Payroll tax regulations vary across the country, so you’ll need to be up to speed on the tax laws and tax credits where your employees reside.

Arizona has a flat tax system, meaning that a single income tax rate is applied to every taxpayer’s income, regardless of amount. This makes it easier to figure out some of your employees’ contributions, but not all. And, of course, the more employees you have, the more you have to withhold and remit to the Arizona Department of Revenue (ADOR). 

It doesn’t matter if you’re running a small mom-and-pop operation or a global corporation; if you employ in Arizona, you’ll need to understand all the different types of payroll taxes, who they apply to, what the rates are, and when they have to be filed. Here’s what you need to know. 

The 2 Arizona payroll taxes

The Arizona Department of Revenue administers the state’s tax laws. Employers must withhold taxes from employees paid for work done in Arizona. There are some exceptions for remote workers, like those working for a business based outside of Arizona and non-resident workers. New employees must fill out an Arizona Form A-4 within five days of employment. The form is given to the employer, who adds it to their employee and tax records. Employers must report new hires and re-hired employees to the Arizona Department of Economic Security’s New Hire Reporting Center within 20 days of hiring.

In Arizona, there are two types of payroll taxes. Let’s take a look at what they cover, who pays them, and the maximum tax you may be responsible for. 

State unemployment insurance tax

Arizona’s unemployment insurance (SUTA or SUI) is part of a program under the Social Security Act. It is administered through a partnership between the US Department of Labor and Arizona’s Department of Economic Security (DES). It provides temporary benefits to eligible workers who become unemployed through no fault of their own (for example, layoffs). 

The joint federal-state program is administered by each state but under federal guidelines. The DES determines unemployment insurance tax rates and taxable wages every year. These rates are based on several factors: the amount of taxes the employer has paid, the amount of unemployment benefits paid, and the size of the employer's annual taxable payroll. New employers pay a rate of 2% for a minimum of two calendar years. The DES notifies employers of their rate at the beginning of the tax year.

Under the Federal Unemployment Tax Act (FUTA), Arizona employers are required to pay both the federal and state unemployment tax. New businesses must register for a state Unemployment Insurance Tax Account Number.

Arizona withholding tax

Arizona employers are required to withhold state income tax from employees working in Arizona. The tax helps fund state services, including public safety, healthcare, and education. As of 2023, the tax amount is 2.5% of the employee’s gross taxable wages. Employers must register their Employee Identification Number (EIN) with ADOR (Arizona Joint Tax Application Form JT-1). ADOR manages reporting, collecting, and enforcement. Arizona employees must fill out Form A-4 and select the percentage of tax they want withheld.

The calculations to determine the amount of tax employers should withhold are done by the employee. The flat tax is 2.5%, but on Form A-4, employees may select a different rate (0.5% to 3.5%) plus an additional amount, if desired. ​​Employees can use Arizona’s income tax withholding formula to ensure they have the correct amount of tax withheld from each paycheck. If an employee hasn’t filed an A-4, the state withholding rate will default to 2%. In all cases, the employee is responsible for under-withholding that results in additional taxes owed and/or underpayment penalties. 

Payroll taxes can be difficult to manage. Even with a flat tax, employers still have to contend with other state and federal (IRS) taxes. If you make a mistake in calculating your Arizona payroll taxes, you may have to deal with fines and penalties—not to mention unhappy employees. But Rippling’s payroll compliance software can streamline the process. Rippling can automate tax calculations, submit forms and payments for you, and keep an eye on changing federal, state, and local tax regulations to make sure you’re always compliant. 

Need more? Rippling’s PEO can register and monitor your Arizona state tax accounts and automate even more of your payroll tax work.

Payroll tax due dates in Arizona

State unemployment insurance tax

Arizona employers are required to file Unemployment Tax and Wage Reports (Form UC-018) and pay state unemployment taxes to the Arizona Department of Economic Security at the end of each quarter. The due dates are the last day of the following month. If the due date falls on a weekend or state holiday, the due date will be the next business day. 

• First quarter (January-March): Due April 30
• Second quarter (April-June): Due July 31
• Third quarter (July-September): Due October 31
• Fourth quarter (October-December): Due January 31

The penalty for filing a late report is 0.1% of the total wages paid that quarter (minimum $35, maximum $200). Unpaid taxes are subject to 1% interest per month or a portion thereof that the payment is late.

Arizona withholding tax

For Arizona withholding tax, the process is similar, but the amounts are remitted to the Department of Revenue. The frequency depends on the amount of tax withheld and the frequency of the employer’s federal remittances (they must be the same).

Annually: For an employer whose previous four-quarter withholding average is less than $200 (and who meets additional criteria). The due date is January 31 of the year following the calendar year the tax was withheld. If the due date falls on Saturday, Sunday, or a legal holiday, the due date is the next banking day.

Quarterly: For an employer whose previous four-quarter withholding average is more than $200 but less than or equal to $1,500. 

• First quarter (January-March): Due April 30
• Second quarter (April-June): Due July 31
• Third quarter (July-September): Due October 31
• Fourth quarter (October-December): Due January 31

If the due date falls on Saturday, Sunday, or a legal holiday, the due date is the next banking day.

Monthly, semi-weekly, or next business day: For an employer whose previous four-quarter withholding average is more than $1,500, they must deposit their withholding tax at the same time as making their federal income tax withholding deposit. If the due date falls on Saturday, Sunday, or a legal holiday, the due date is the next banking day.

• Monthly: Due the 15th day of the month following the month in which wages were paid. 
• Semi-weekly:
• Wednesday, Thursday, or Friday: Due the following Wednesday.
• Saturday, Sunday, Monday, or Tuesday: Due the following Friday.
• Next business day: Due the following day.

Late payments can be costly, with penalties of up to 25% of the taxes due.

How to submit payroll taxes in Arizona

Now that we’ve looked at the types of payroll taxes that Arizona employers have to pay, the next step is filing and paying them. The methods are different for each type of tax, but you can file unemployment insurance taxes and withholding taxes electronically. Here are your options: 

Online services

Unemployment insurance tax

Employers can make unemployment insurance payments to DES using the Arizona Unemployment Tax and Wage System. You can submit payments anytime using Electronic Funds Transfer (EFT). 

Arizona withholding tax

Arizona withholding tax can be paid electronically using the Arizona Department of Revenue’s AZTaxes system or AZFSET with a user account.

Mail

Unemployment insurance tax

The Arizona Department of Economic Security recommends filing electronically, but you can pay by check or money order. Ensure it’s payable to: Department of Economic Security - Unemployment Tax. Write your Arizona unemployment tax account number and the filing period on your payment as well. Enclose a voucher if you’ve printed one, but it’s not required.

Mail your payment to:

DES - Unemployment Tax

PO Box 52027

Phoenix, AZ 85072-2027

Arizona withholding tax

Employers can submit withholding tax returns and payments by mail. Make checks payable to the Arizona Department of Revenue and include your EIN and tax period on your payment. 

Arizona Department of Revenue
P.O. Box 29009
Phoenix, AZ 85038

Telephone

Unemployment insurance tax

Employers can use the Arizona Unemployment Insurance Tax IVR system to make payments over the phone. You can use a credit or debit card 24 hours a day, seven days a week. To make a payment using the automated telephone payment system, call (602) 771-6604. For additional information on what documents you’ll need to have handy, visit the DES website.

Arizona withholding tax
Telephone payments are not available.

Rippling’s full-service payroll software

Searching for a simpler payment solution? Rippling’s payroll software is a powerful tool that automates all your compliance tasks and submits your federal and Arizona state payroll taxes promptly and accurately to the proper authorities. 

FAQs about Arizona payroll taxes

Are there local tax laws in Arizona?

No. Arizona doesn’t have any local income tax laws. 

Can your tax returns be audited in Arizona?

Yes. The Arizona Department of Revenue conducts audits to ensure taxpayers comply with Arizona tax regulations. This also applies to employers and Arizona withholding tax filings.

Are nonprofit organizations subject to payroll taxes in Arizona?

Some nonprofit organizations are responsible for withholding and paying Arizona’s payroll taxes. However, organizations with an exemption under Internal Revenue Code (IRC) Section 501(c)(3) are not subject to Arizona income tax withholding. 

Nonprofits that are exempt from federal unemployment taxes under the same section can voluntarily elect to participate in the unemployment insurance program and select how they want to pay for it.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.