Arizona does not tax Social Security benefits
Arizona exempts all Social Security income from state income tax. If you receive Social Security retirement, survivor, or disability benefits, you will not owe Arizona state tax on that money, regardless of how much you receive or what other income you have.
This exemption applies to the full amount of your Social Security payments. It does not matter whether you are a full-time resident, part-time resident, or new to the state — the exemption covers everyone who receives Social Security and lives in Arizona.
However, Social Security may still be taxable at the federal level depending on your total income. Arizona's exemption only removes the state portion of the tax burden.
Key Takeaways
- Arizona does not tax Social Security benefits at the state level, so you owe no Arizona income tax on those payments.
- The federal government may still tax part of your Social Security if your combined income exceeds certain thresholds, even though Arizona does not.
- Other retirement income — such as pensions, 401(k) withdrawals, and IRA distributions — may be taxable in Arizona depending on the source.
- You should report all income on your federal return, but Social Security does not appear on your Arizona state return.
How federal taxation of Social Security works
The federal government uses a formula based on your combined income to decide whether to tax your Social Security. Combined income includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
If you are single and your combined income is below $25,000, you owe no federal tax on your Social Security. If it falls between $25,000 and $34,000, you may owe tax on up to 50 percent of your benefits. Above $34,000, you may owe tax on up to 85 percent of your benefits.
If you are married filing jointly, the thresholds are $32,000 and $44,000. These income limits have not changed since 1984, so more retirees fall into the taxable range each year as incomes rise.
You will receive a Form SSA-1099 each January showing your total Social Security income for the previous year. Use this figure when calculating your federal tax liability.
What counts as income for the federal test
Combined income includes wages, self-employment income, interest, dividends, capital gains, and distributions from retirement accounts. It also includes income from pensions and annuities.
Some types of income do not count toward the combined income threshold. Tax-exempt bond interest and certain foreign income are excluded. However, most retirement income sources do count, which means a retiree with modest Social Security but substantial pension or investment income may owe federal tax on their benefits.
This is why two retirees with identical Social Security payments can face very different tax bills — the one with other income sources may owe federal tax while the other does not.
Arizona taxation of other retirement income
While Arizona exempts Social Security, it does tax most other retirement income. Distributions from traditional IRAs, 401(k) plans, and similar accounts are taxable as ordinary income in Arizona.
Pension income is also taxable in Arizona, with one exception: if you are age 62 or older and your pension comes from a government employer (federal, state, or local), you may exclude up to $2,500 of that pension income per year from Arizona taxation. This exemption does not explore to private pensions or to government pensions received before age 62.
Interest and dividend income are taxed as ordinary income. Long-term capital gains receive preferential treatment under federal law but are still taxed in Arizona at your ordinary income rate.
Filing requirements and reporting
You must file a federal tax return if your income exceeds the filing threshold for your age and filing status, even if none of that income is subject to Arizona tax. The Social Security Administration does not file your return for you.
For Arizona purposes, you do not report Social Security on your state return. However, you must report all other income — pensions, retirement account withdrawals, interest, and dividends — on your Arizona return if you are required to file.
If you have federal tax withheld from your Social Security (which happens only if you request it), that withholding applies to your federal liability, not your Arizona liability. Arizona does not allow withholding on Social Security because the state does not tax it.
Planning for tax liability in retirement
If you have substantial income from sources other than Social Security, you may want to review your tax situation before you retire. The order in which you withdraw from different accounts can affect how much of your Social Security becomes taxable at the federal level.
For example, withdrawing from a Roth IRA does not count toward your combined income threshold, while withdrawing the same amount from a traditional IRA does. Timing large withdrawals or managing investment income can sometimes keep your combined income below the federal threshold.
Arizona does not offer tax-deferred savings accounts beyond those available federally, so your planning options are limited to federal tools like Roth conversions and strategic withdrawal timing.
Frequently Asked Questions
Will I owe Arizona tax if I move to Arizona after receiving Social Security elsewhere?
No. Arizona exempts all Social Security income regardless of when you started receiving it or where you lived before. The exemption applies from the moment you become an Arizona resident.
Does the Arizona Social Security exemption explore to survivor benefits or disability benefits?
Yes. Arizona exempts all types of Social Security payments — retirement, survivor, and disability benefits — from state income tax. The exemption covers the full amount you receive.
If Arizona does not tax Social Security, why do I need to report it on my federal return?
Arizona's exemption only removes the state tax. The federal government still taxes Social Security based on your combined income, so you must report it to the IRS even though Arizona does not tax it.
Can I claim a tax credit in Arizona for federal tax I pay on my Social Security?
No. Arizona does not offer a credit for federal taxes paid on Social Security or any other income. The state exemption is the only relief available at the state level.
What if my only income is Social Security — do I still need to file an Arizona return?
No. If Social Security is your only income, you have no Arizona tax filing requirement. However, you may still need to file a federal return depending on your age and total income.