Arizona payroll taxes: Your 2026 guide to staying compliant

Arizona, known for its dynamic growth, continues to be a magnet for businesses and talent. The state's economy is diversified and expanding, with significant contributions from sectors such as healthcare and social assistance, manufacturing (especially semiconductors and advanced technology), professional and technical services, and a robust real estate and construction market. This strong economic environment is further underscored by impressive growth metrics. For the fiscal year that ended on June 30, 2025, the Arizona Commerce Authority reported commitments from companies to create a projected 24,285 new Arizona jobs with an average wage of $95,928, signaling a record-setting period of expansion for the state. As businesses thrive in this competitive landscape, understanding and managing payroll taxes is crucial for sustained compliance and success.

Navigating payroll taxes involves understanding both federal and state regulations. This guide will walk you through the essentials of payroll taxes, offering insights into what they are and how to manage them effectively for your Arizona business.

Jump to:

• What are payroll taxes?
• Understanding Arizona state payroll taxes
• Other important tax considerations
• Employer responsibilities for payroll taxes in Arizona
• Filing payroll tax returns in Arizona
• Common payroll tax mistakes in Arizona (and how to avoid them)
• How to manage your small business payroll obligations
• Leverage payroll software for compliance in Arizona

What are payroll taxes?

Payroll taxes are taxes based on wages, salaries, or other compensation that both employers and employees must pay. While income taxes are also withheld through payroll, payroll taxes specifically fund programs like Social Security, Medicare, and unemployment insurance.

Understanding Arizona state payroll taxes

When starting a business in Arizona, you'll need to understand both federal and state payroll taxes.

Federal payroll taxes

Payroll taxes are mandatory and encompass both federal and state requirements.

Federal payroll taxes include:

• Federal income tax: This is withheld from each employee's paycheck based on their W-4 form and the current IRS tax brackets. You'll be responsible for calculating the correct amount, withholding it, and then sending it to the IRS.
• Social Security and Medicare taxes: Both of these taxes have a portion paid by the employee and a matching portion paid by you, the employer. For Social Security, the combined rate is 12.4% on the first $176,100 of wages in 2025. For Medicare, it's 2.9% on all wages, with an extra 0.9% for higher earners. You'll withhold the employee's portion and match it.
• Federal Unemployment Tax (FUTA): This is paid solely by you at a rate of 6% on the first $7,000 of each employee's wages. However, most employers get a 5.4% credit, reducing the rate to 0.6%. The graphic below lists some best practices for managing your FUTA obligations.

Arizona state payroll taxes

In addition to federal payroll taxes, Arizona employers must also account for state-specific payroll taxes. These are unique to The Grand Canyon State and require careful attention for accurate withholding and reporting.

• State Income Tax: Arizona imposes a flat individual income tax. For 2025, the rate is 2.5% of gross taxable wages. Employers are responsible for withholding this tax from their employees' paychecks and remitting it to the Arizona Department of Revenue (ADOR). Understanding Arizona's income tax is a key part of payroll compliance.
• State Unemployment Insurance (SUI): Arizona's SUI is a tax paid solely by employers, which funds temporary benefits for eligible unemployed workers. For 2025, new employers are typically assigned a rate of 2.0% for a minimum of two calendar years. Experienced employers' rates vary from 0.04% to 9.72%, based on their unemployment experience and reserve ratio. This tax applies to the first $8,000 of each employee's wages annually.

Arizona local payroll taxes

While the primary payroll tax obligations for employers in Arizona reside at the federal and state levels, it's always prudent to be aware of any potential local requirements that might apply to your specific business location.

• Check with your local government to see if local regulations could impact your operations. Some local jurisdictions may have tax requirements, such as transaction privilege taxes (TPT, similar to sales tax) or specific business registration fees that are separate from payroll taxes but essential for compliance.
• Consult a tax professional if you need help understanding any complex local tax rules. An accountant specializing in Arizona payroll taxes can provide tailored advice, help you navigate compliance, and ensure your business meets all its obligations.

Other important tax considerations

Multiple locations

If your business has employees working in multiple cities or counties, you may be subject to different local taxes and compliance responsibilities for each location.

Changing rates

Tax rates can change over time, so it's important to stay informed about any updates that may affect your business.

Employer responsibilities for payroll taxes in Arizona

As an Arizona employer, you're responsible for managing a complex array of federal and state payroll taxes, which involves careful calculation, timely withholding, and accurate reporting to various government agencies. Here’s an overview of what you should know.

Registering for payroll taxes

Before you can begin withholding and remitting payroll taxes, your business must be properly registered with the relevant Arizona state agencies. This process ensures you receive the necessary account numbers and information for compliant filing.

Here are the general steps for registering for payroll taxes in Arizona:

1. Obtain a Federal Employer Identification Number (EIN): If you haven't already, your first step is to secure an EIN from the IRS. This nine-digit number is essential for all federal tax purposes and is also required for state registrations.
2. Register with the Arizona Department of Revenue (ADOR) and the Department of Economic Security (DES): Arizona uses a joint application process for both state income tax withholding and Unemployment Insurance (SUI) with the Arizona Department of Economic Security (DES). The most common and recommended method to register is to use the ADOR tax portal. You'll need to create a user account and then complete the Arizona Joint Tax Application (Form JT-1) online. This single application registers your business for both the state income tax withholding account (with ADOR) and the unemployment insurance account (with DES). Alternatively, you can complete a paper Arizona Joint Tax Application (Form JT-1) and mail it to the ADOR. The ADOR will then forward a copy to DES to establish your unemployment insurance account.
3. Receive Your Account Numbers: After successful registration, both the Arizona Department of Revenue and the Department of Economic Security will notify you separately with your assigned account numbers. Your Arizona Withholding Account Number is typically the same as your federal EIN, but it needs to be specifically registered with the ADOR. The DES will provide your unique eight-digit Arizona UI employer account number. Keep these numbers in a secure place, as you'll need them for all future filings and communications.

Calculating payroll taxes

Effectively calculating payroll taxes is a critical ongoing responsibility for every Arizona employer. It ensures accurate withholdings from employee paychecks and correct payments to the state and federal governments, preventing penalties and maintaining compliance.

To accurately calculate your Arizona payroll taxes, you'll need to consult official state resources that provide the most current tax rates and guidelines.

• Check government websites: It's crucial for Arizona businesses to rely on official government websites like the Arizona Department of Revenue for the most accurate and up-to-date tax information. These sites provide direct access to current rates, forms, and legal guidelines, ensuring compliance and helping to avoid penalties.
• Payroll software: Some small business software payroll programs have built-in Arizona tax tables that automate calculations, saving you time and minimizing the chance for errors.
• Professional services: If you prefer to outsource payroll, a professional payroll service can handle everything for you.

Whichever method you choose, make sure you stay updated on the current tax rates and wage limits, as these can change every year.

Withholding state payroll taxes

Once you've calculated the correct amounts, you'll need to withhold state income taxes from your employee’s wages and remit them to the appropriate authorities. Follow Arizona’s guidelines for withholding and remittance timelines to avoid penalties.

State Income Tax: Arizona employers are required to withhold state income tax from their employees' gross taxable wages. For 2025, Arizona has a flat income tax rate of 2.5%. Employees indicate their withholding preferences by completing Arizona Form A-4, "Arizona Withholding Percentage Election," which allows them to select a specific withholding percentage (typically between 0.5% and 3.5%, though reconciliation at year-end is based on the 2.5% flat rate). If an employee does not provide a Form A-4, the employer must generally withhold at the default rate of 2.0%.

• *Example:* *An employee earns $1,500 in gross taxable wages for a bi-weekly pay period. If they have elected to withhold at the default 2.0% rate on their Form A-4 (or haven't submitted one), the employer would withhold $30 ($1,500 x 0.02) for state income tax from that paycheck.*

State Unemployment Insurance (SUI): Unlike income tax, Arizona's SUI is paid solely by the employer and is not withheld from employee wages. This tax funds unemployment benefits for eligible workers. For 2025, the taxable wage base is the first $8,000 of each employee's gross wages annually. New employers typically pay a rate of 2.0% for a minimum of two years, while experienced employers' rates range from 0.04% to 9.72% based on their claims history.

• *Example:* *A new employer pays an employee $1,000 per week. For the first eight weeks, the employer would accrue SUI tax at their assigned rate (e.g., 2.0% for new employers) on the full $1,000. So, for the first week, $20 ($1,000 x 0.02) would be the SUI liability. Once the employee's cumulative gross wages for the year reach $8,000, no further SUI tax is assessed on that employee's wages for the remainder of the year.*

By applying these calculations to each paycheck, you ensure accurate withholdings and compliance with state requirements.

Remitting state payroll taxes

After calculating and withholding the appropriate amounts, Arizona employers are responsible for remitting these funds to the state. This typically involves submitting payments electronically to the Arizona Department of Revenue (ADOR) for income tax withholding and to the Department of Economic Security (DES) for State Unemployment Insurance (SUI) through their respective online portals.

Filing payroll tax returns in Arizona

In Arizona, employers must comply with quarterly and annual payroll tax return requirements to meet state and federal obligations. Here's a breakdown of 2025 state-level requirements:

Quarterly requirements: