Payroll tax in Arizona: What employers need to know [Updated 2026]
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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 of 2.5% 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 for 2026.
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. 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 DES determines unemployment insurance tax rates and taxable wages every year. In 2026, the taxable wage base is $8,000 per employee. New employers pay a flat rate of 2.0% for a minimum of two calendar years. The DES notifies employers of their experience rate at the beginning of each tax 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.
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.
Who pays | Employer |
|---|---|
Tax rate | New businesses: 2% Established businesses: 0.05% to 14.03% |
Taxable wage limit | First $8,000 per employee per year |
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 2026, Arizona's flat income tax rate 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.
Who pays | Employee |
|---|---|
Tax rate | 2.5% flat tax |
Taxable wage limit | No Limit |
Maximum tax | No Limit |
The flat tax is 2.5%, but on Form A-4, employees may select a different withholding 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 automates tax calculations, submits forms and payments for you, and keeps 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.
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
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.
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.
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. 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. Send to: 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 using a credit or debit card 24/7. Call (602) 771-6604. For additional information, visit the DES website.
Rippling's full-service payroll software
Arizona's flat 2.5% income tax keeps withholding straightforward, but managing SUI rates, quarterly filings, and employee exemptions still takes real effort—especially as your team grows. Rippling's payroll software automates all of it: tax calculations, form submissions, and payments to the right agencies—promptly and accurately. Rippling also stays current with Arizona's annual SUI rate notices so your rates are always applied correctly without any manual lookups.
Frequently Asked Questions
Are there local tax laws in Arizona?
No. Arizona doesn’t have any local income tax laws.
What is Arizona's state income tax rate in 2026?
Arizona has a flat state income tax rate of 2.5% in 2026, applied to all taxable wages regardless of income level. This makes Arizona one of the lowest flat-rate income tax states in the country. Employers withhold this amount from employee paychecks based on the rate selected on Arizona Form A-4—employees may choose a withholding percentage between 0.5% and 3.5%, or request additional withholding. If an employee doesn't submit a Form A-4, the employer defaults to withholding 2%. Arizona's flat rate means withholding calculations are straightforward compared to states with progressive tax brackets, though employers still need to stay current on annual SUI rate notices and maintain proper registration with the Arizona Department of Revenue.
How do Arizona employers handle withholding for remote or out-of-state employees?
Arizona requires employers to withhold state income tax for employees who perform work within Arizona's borders, whether they are Arizona residents or non-residents. For employees who live in another state but work in Arizona, Arizona withholding generally applies unless a reciprocal agreement exists. Arizona has a reciprocity agreement with California: California residents working in Arizona can claim exemption from Arizona withholding by submitting a Withholding Exemption Certificate (WEC) to their employer. For fully remote employees who work entirely outside of Arizona, Arizona withholding is generally not required since the work is performed in another state. Always verify the employee's physical work location—not just their home address—when determining withholding obligations, especially for hybrid workers or employees who travel.
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.
Author
Vanessa Kahkesh
Content Marketing Manager, HR
Vanessa Kahkesh is a content marketer for HR passionate about shaping conversations at the intersection of people, strategy, and workplace culture. At Rippling, she leads the creation of HR-focused content. Vanessa honed her marketing, storytelling, and growth skills through roles in product marketing, community-building, and startup ventures. She worked on the product marketing team at Replit and was the founder of STUDENTpreneurs, a global community platform for student founders. Her multidisciplinary experience — combining narrative, brand, and operations — gives her a unique lens into HR content: she effectively bridges the technical side of HR with the human stories behind them.
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