Arizona employers, you may know that Senate Bill 1828 substantially reduced the state’s income taxes starting with the 2022 tax year. But did you also know that it requires employer action for the 2023 tax year? You must now give all employees—not just new hires—a new AZ state income tax form.
Read on to learn about changes to AZ state withholding and what you need to do.
AZ state withholding overview
Like most states, Arizona has a state income tax. Employers withhold state income taxes from employee wages. To determine how much to withhold, new hires must fill out the state W-4 form. Arizona’s W-4 form is Form A-4.
Distribute Arizona Form A-4, Employee’s Arizona Withholding Election, to new hires. Withhold state income tax according to the information employees enter.
Employees enter the following information on Form A-4:
- Name
- Social Security number
- Address
- State income tax withholding percentage
- Withholding exemption, if applicable
- Additional withholding, if desired
Generally, only new employees and employees who want to change their withholding amounts complete a new state W-4 form. However, the 2023 AZ state income tax form is an exception.
New 2023 AZ state income tax form
In 2021, the Arizona Legislature passed Senate Bill 1828, which reduced Arizona’s individual income tax rates beginning in the 2022 tax year. And beginning in 2023, Arizona will change its income tax structure to a flat tax rate of 2.5%.
As a result of these changes, the withholding rates on prior forms are no longer representative of the lower income tax rate.
The 2023 Arizona Form A-4 has been updated to reflect Arizona’s lower individual income tax rate. Here’s what that means for employers and employees.
How do the 2022 and 2023 tax rates on Form A-4 compare?
Again, Arizona updated Form A-4 to reflect the lower individual income tax rate. You can compare the tax withholding options between the 2022 and 2023 versions on the chart below.
| 2022 Form A-4 Tax Rates | 2023 Form A-4 Tax Rates |
|---|---|
| 0.8% | 0.5% |
| 1.3% | 1.0% |
| 1.8% | 1.5% |
| 2.7% | 2.0% |
| 3.6% | 2.5% |
| 4.2% | 3.0% |
| 5.1% | 3.5% |
Employees can still claim exemption from state income tax or request additional AZ income tax withholding on the new A-4 form.
What do employers need to do?
Arizona employers must make the new form available to all employees by January 31, 2023. This includes your current employees who have already filled out a state W-4 form.
Collect completed new A-4 forms and keep them in your employees’ files. Like any state W-4 form, do not remit the forms to the Arizona Department of Revenue.
You can get the new Arizona Form A-4 on the state’s website here.
What happens if employees don’t fill out the form?
Employees who don’t fill out the new AZ state income tax form have a default withholding rate of 2.0%. Update your records and payroll to reflect this 2.0% rate.
New A-4 recap
Don’t neglect your employer responsibilities. Review the following information to help stay up-to-date with the new A-4 form:
- Beginning in 2023, Arizona will have a flat tax rate of 2.5%
- Employers must make the 2023 A-4 form available to all employees no later than January 31, 2023
- The seven new rates on the 2023 A-4 form are 0.5%, 1.0%, 1.5%, 2.0%, 2.5%, 3.0%, and 3.5%
- Employees can still claim exemption from state income tax on the new A-4 form
- Employees can still request additional AZ income tax withholding on the new A-4 form
- If employees don’t fill out the new form, withhold the AZ default withholding rate of 2.0%
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