Arizona has a state income tax that applies to residents and part-year residents
Arizona charges state income tax on wages, self-employment income, interest, dividends, and other earnings. If you live in Arizona or worked there for part of the year, you will likely owe state income tax to Arizona in addition to federal income tax. The tax rate depends on your income level — Arizona uses a progressive tax system with rates that increase as your income rises.
You must file an Arizona state tax return if your income exceeds the filing threshold for your filing status. The threshold changes each year and is typically lower than the federal threshold, so you may need to file with Arizona even if you do not owe federal tax. Part-year residents and people who moved to or from Arizona during the year must also file, even if their income falls below the threshold.
Key Takeaways
- Arizona state income tax rates range from 2.55% to 4.5% depending on your income bracket, with higher earners paying the higher percentage.
- You must file an Arizona return if you earned income in Arizona or lived there during the tax year, even if you do not owe federal tax.
- The Arizona Department of Revenue processes state returns and determines what you owe based on your income, deductions, and credits.
- Part-year residents and people who moved to Arizona mid-year must report income for only the months they lived in the state.
- Arizona offers tax credits for things like dependent children and education expenses that can reduce the amount of tax you owe.
How Arizona income tax brackets work
Arizona uses tax brackets that change each year. For the 2023 tax year, single filers pay 2.55% on income up to about $31,000, then the rate increases in steps to 4.5% on income above roughly $250,000. Married couples filing jointly have higher bracket thresholds. The exact dollar amounts shift annually to account for inflation, so you need to check the current year's brackets when you file.
Your tax bracket does not mean you pay that rate on all your income — you only pay the higher rate on the income that falls within that bracket. For example, if you are single and earn $40,000, you pay 2.55% on the first $31,000 and a higher rate only on the remaining $9,000. This is called a progressive tax system.
Who must file an Arizona state return
You must file if you are an Arizona resident and your income exceeds the filing threshold for your status. Arizona residents include people who lived in the state for the entire tax year and people who moved there during the year. If you lived in Arizona for only part of the year, you are a part-year resident and must file if you had Arizona-source income — money you earned while living in the state.
The filing threshold depends on your age and filing status. A single person under 65 typically must file if their income is above a certain amount (which varies yearly), while a single person 65 or older has a higher threshold. Married couples filing jointly have a different threshold than single filers. You can find the exact thresholds for the current year on the Arizona Department of Revenue website.
Even if your income is below the threshold, you may want to file anyway if taxes were withheld from your paychecks. Filing allows you to claim a refund of the overpaid amount.
Arizona tax credits that reduce what you owe
Arizona offers several credits that directly reduce your tax bill. A tax credit is different from a deduction — a credit subtracts directly from the tax you owe, while a deduction reduces your taxable income. The Dependent Exemption Credit gives you a credit for each dependent child or relative you support. The Arizona Education Credit applies if you paid tuition to an Arizona school or contributed to an education savings account.
Other credits include the Earned Income Credit (which Arizona mirrors from the federal system) and credits for property taxes or rent paid. Some credits are refundable, meaning if the credit is larger than your tax bill, you receive the difference as a refund. Others are nonrefundable, so they can only reduce your tax to zero but cannot create a refund.
How to report income earned outside Arizona
If you are an Arizona resident, you must report all income you earned anywhere in the world, including income from other states or countries. Arizona taxes your worldwide income as long as you are a resident. However, you may be able to claim a credit for taxes you paid to another state on that income, which prevents you from being taxed twice on the same earnings.
If you worked in another state and that state also taxes your income, you can claim an Arizona credit for the taxes you paid there. The credit is limited to the lesser of what you paid to the other state or what you would owe to Arizona on that income. You report this on your Arizona return using the appropriate form.
Part-year residents and the Arizona tax return
A part-year resident is someone who moved to Arizona during the tax year or moved away during the year. You must file an Arizona return if you had income while living in the state. On your return, you report only the income you earned during the months you lived in Arizona — you do not report income from months when you lived elsewhere.
When you move to Arizona, your first year as a resident is a part-year resident year. You report income from the date you arrived through December 31. When you move away, your last year in Arizona is also a part-year resident year. You report income from January 1 through the date you left. The Arizona Department of Revenue has worksheets to help you calculate your part-year resident income and tax.
Self-employment income and Arizona taxes
If you are self-employed, you must report your business income on your Arizona return. Self-employment income includes money from a business you own, freelance work, or other earnings where you are not an employee. You report this income on your federal return and also on your Arizona return. Arizona does not have a separate self-employment tax like the federal government does, but your business income is subject to the regular state income tax rates.
You can deduct business expenses on your Arizona return, just as you do on your federal return. Common deductions include supplies, equipment, home office expenses, and vehicle mileage. Keep records of your income and expenses throughout the year so you have them when you file. If you owe Arizona income tax and self-employment tax combined, you may need to make quarterly estimated tax payments to avoid penalties.
Frequently Asked Questions
Does Arizona tax retirement income and Social Security?
Arizona does not tax Social Security benefits. Retirement income from pensions and 401(k) withdrawals is taxable, but Arizona offers a pension exemption that excludes some or all of your pension income from taxation, depending on your age and income level. You should check the current rules to see if your retirement income qualifies for the exemption.
What happens if I do not file an Arizona return when I should?
The Arizona Department of Revenue can assess penalties and interest on unpaid taxes. The penalty for failing to file is typically 5% of the unpaid tax per month, up to 25%. Interest accrues on the unpaid amount. If you realize you missed a year, you can file a late return, and the department may reduce penalties if you have a reasonable cause for the delay.
Can I file my Arizona return electronically?
Yes, the Arizona Department of Revenue accepts electronic returns through approved tax software and tax professionals. E-filing is faster than mailing a paper return and produces a confirmation that your return was received. You can also file by mail if you prefer, but processing takes longer.
Do I owe Arizona tax if I only lived there for a few months?
If you lived in Arizona for any part of the tax year and earned income while there, you must file as a part-year resident. You report only the income you earned during the months you lived in Arizona. Your tax is calculated on that portion of your annual income, so you may owe less than someone who lived there the full year.