Arizona Payroll Tax Guide (2026)

Arizona does something few states do: the employee, not a table, picks the withholding percentage, choosing any step from 0.5 to 3.5% of gross taxable wages, and anyone who does not file a Form A-4 within five days of hire is withheld at 2.0% by default.^[5]

10 min read • Reviewed by Rajanikant Patel CPA • Verified Oct 1, 2026 • Sources: AZDOR, DES, IRS

Quick Facts

Arizona payroll at a glance

Arizona has two state payroll taxes: a flat percentage income tax withholding that the employee chooses on Form A-4, and unemployment insurance contributions that the employer pays alone on the first $8,000 of wages.^[5]

State income tax withholding

0.5%–3.5% ^[1]

UI taxable wage base

$8,000 per employee ^[5]

New employer UI rate

2.00% ^[5]

Experienced UI rate range

0.03%–8.36% ^[5]

Employee-paid state payroll tax

None ^[5]

Social Security wage base

$184,500 ^[2]

FUTA net rate

0.6% = $42 per employee ^[14]

State minimum wage

$15.15 per hour ^[9]

Local minimum wage ordinances

2 jurisdictions ^[9]

UI registration trigger

Liability starts when you pay $1,500 or more in wages in a calendar… ^[5]

Exempt salary threshold

$35,568 per year ^[13]

Additional Medicare threshold

Over $200,000, employee only ^[3]

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What changed for Arizona payroll in 2026

Six items moved for Arizona employers this year. Anything below is what have changed since the 2025 tables, so a rate card carried over from last year will be wrong in at least one place.

Minimum wage to $15.15 Tipped cash wage now 12.15 Tucson minimum wage 15.45 UI rates run 0.03% to 8.36% UI wage base stays 8,000 A-4 election range unchanged

Letting the 2.0% default ride: Arizona does not compute withholding from allowances or a bracket table. It applies whatever percentage the employee elected on Form A-4 to gross taxable wages. If a new hire does not complete the form within five days you must start withholding at 2.0%, and that default frequently under-withholds higher earners. Chase the form rather than treating 2.0% as a safe landing spot.^[1]

Estimate

2026 Arizona payroll tax calculator

Enter one employee’s annual gross wages to see what the employer owes, what comes out of the paycheque, and the true cost of employment.

Arizona · 2026 rates · per employee, per calendar year

Annual gross wages ($)

Cash wages subject to payroll tax, before any withholding.

Your UI contribution rate

Your exact rate is on the Determination of Unemployment Tax Rate, Form UC-603, mailed at year end for the coming calendar year.

Custom UI rate (%)

FUTA basis

FUTA is 6.0% less a 5.4% credit where the state has no outstanding federal loan.

Employer pays

UI, on first $8,000–

FUTA, on first $7,000–

Social Security, 6.2%–

Medicare, 1.45%–

Employer payroll tax–

Withheld from the employee

Social Security, 6.2%–

Medicare, 1.45%–

Additional Medicare, 0.9% over $200,000–

Withheld from employee–

True cost of employment–

Employer tax as % of wages–

Total payroll tax, both sides–

State income tax withholding is not included above: it depends on the employee’s Arizona Form A-4, Employee’s Arizona Withholding Election and filing status, so it cannot be estimated from gross pay alone.

Rates & Nexus

Payroll tax rates & the nexus question

Arizona runs two state payroll taxes. The table below is the whole state layer for 2026.^[5]

The state payroll taxes

Tax	Paid by	2026 rate	Wage base
UI	Employer	0.03%–8.36%; 2.00% new	$8,000
Income tax withholding	Employee	0.5%–3.5%	No limit

Rates come from the 2026 UIT-0603A reserve ratio chart. Positive reserve ratio groups run from 0.03 to 4.18% and negative reserve ratio groups run from 4.41 to 8.36%. Rates are adjusted each year under ARS 23-730 to hit the required yield.^[5]

Who has to register

Liability starts when you pay $1,500 or more in wages in a calendar quarter, or have at least one worker for part of a day in 20 different weeks in a calendar year. Household employers are liable at $1,000 in a quarter, agricultural employers at $20,000 in a quarter or 10 workers in 20 weeks, and 501(c)(3) nonprofits at four or more workers in 20 weeks. Register on the Arizona Joint Tax Application, Form JT-1/UC-001.^[5] Income tax withholding is administered separately by Arizona Department of Revenue, so most employers end up with two state account numbers, not one.

Multistate and remote employees

When an employee works in more than one state, the four-part test below decides which state the wages are reported to. The tests run in order: you stop at the first one that gives an answer.

1. Localisation of service→
2. Base of operations→
3. Place of direction & control→
4. Employee’s residence

One remote employee is usually enough. A single person working from home in Arizona generally creates an obligation to register and report wages here, even if the business has no office, property or customers in the state.

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Compliance

Registration & return filing

Registration is online and free. The unemployment account and, where one exists, the withholding account are opened separately and carry different numbers.^[5]

How to register

Cross the wage threshold→
Tax and Wage System (TWS)→
Receive account number→
Determination of Unemployment Tax Rate, Form UC-603, mailed at year end for the coming calendar year→
File & deposit online

Deposit schedule

Set by the average Arizona tax withheld over the previous four quarters. An average under $200 may file annually, more than $200 up to $1,500 files quarterly, and above $1,500 the employer follows its federal deposit timing, which means monthly, semi-weekly or next business day.^[1]

Returns, reports & due dates

Form	What it is	Due
Form UC-018, Unemployment Tax and Wage Report	Quarterly unemployment return	April 30, July 31, October 31, January 31
Form A1-QRT quarterly with Form A1-WP payment vouchers, Form A1-R annual…	Income tax withholding returns	Set by the average Arizona tax withheld over the previous four quarter
Annual reconciliation	Year-end withholding reconciliation	January 31
Form 941	Federal quarterly return	Last day of the month after quarter end
Form 940	Federal unemployment, annual	January 31
New hire report	Report of newly hired employees	Within 20 days of start date

Quarterly unemployment returns are due April 30, July 31, October 31, January 31. A return filed one day late is delinquent, and in most states the penalty attaches to the return, not the payment.^[5]

Pricing

Payroll Pricing

Simple, transparent pricing, no setup fees, no year-end surprises. One flat charge per pay run.

Your Biweekly Payroll Statement

Line items the big providers quietly bill for

NO HIDDEN FEES
CROWNGLOBE

Setup fee

one-time onboarding

billed
extra

Every payroll run

each pay cycle

billed
extra

Off-cycle payroll

corrections & bonuses

billed
extra

Year-end filings

W-2s, 1099s & more

billed
extra

All you actually pay

Per employee, per pay run

$6 /emp

Plus a flat $40 minimum per pay run. That’s the whole bill.

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Wage Base

Subject wages vs. exempt payments

Not every dollar an employee receives is a taxable wage. The split below governs what goes into the unemployment wage base and what is reported at year end.^[5]

Subject wages

Salaries, hourly pay, overtime and piece rates
Commissions, bonuses and incentive pay
Most cash tips reported by the employee
Vacation, holiday and paid sick leave when taken as wages
Severance and payments in lieu of notice
The cash value of meals and lodging provided as compensation
Employer contributions to a non-qualified deferred compensation plan

Not subject

Reimbursements of genuine business expenses under an accountable plan
Employer contributions to a qualified retirement plan
Employer-paid premiums for accident and health insurance
Most third-party sick pay after the sixth calendar month
Payments to a genuine independent contractor
Workers compensation benefits

The wage base is per employer, per year, not per job. If you hire someone in August who already earned $8,000 elsewhere, your unemployment clock still starts at zero. The one exception is a successor employer taking over an existing payroll, who inherits the wages already paid.

Reference

Glossary of key terms

Taxable wage base: The slice of each employee’s annual pay that unemployment tax is calculated on. In Arizona that is $8,000 for 2026. Earnings above it are still wages, they are simply no longer taxed for unemployment.
Experience rating: The method Arizona Department of Economic Security uses to set each employer’s own unemployment rate from its history of claims. Employers with fewer charged claims move down the schedule; those with more move up.
New employer rate: The rate assigned before an employer has enough history to be experience rated. It normally applies for two to three years, then the account moves onto the experience schedule.
Arizona Form A-4, Employee’s Arizona Withholding Election: The state withholding certificate. It sets how much income tax comes out of each cheque and is filed with the employer, not with Arizona Department of Revenue.
Reserve account: The running balance of contributions an employer has paid in, less the benefits charged against it. The ratio of that balance to taxable payroll is what drives the assigned rate.
Successor employer: A business that acquires another’s payroll may inherit both its experience rate and the wages already paid toward the wage base for the year. Getting this wrong is a common acquisition error.
Localisation of service: The first of four tests deciding which state a multistate employee’s wages are reported to. If substantially all the work is in one state, that state wins and the remaining tests are never reached.
FUTA credit reduction: A reduction in the 5.4% federal unemployment credit applied to states that have carried an outstanding federal loan for two or more consecutive Januaries. It raises the effective FUTA rate and is settled each November.
Supplemental wages: Bonuses, commissions, awards and similar payments made outside the regular payroll cycle. Many states set a separate flat withholding rate for them.

Federal, State & Local

Arizona payroll tax, layer by layer

Federal tax applies everywhere and is the larger number. The state layer is what changes when you cross a border.

Layer 1: Federal

Tax	Rate	2026 base
Social Security	6.2% each side	$184,500
Medicare	1.45% each side	No limit
Additional Medicare	0.9% employee only	Over $200,000
FUTA, standard	0.6% net	$7,000
Federal income tax	Per Form W-4	No limit

Arizona has no FUTA credit reduction for 2026, so the standard 0.6% net rate applies, $42 per employee. The final list is not published until 10 November 2026.^[14]

Layer 2: State

Tax	Rate	2026 base
UI, new employer	2.00%	$8,000
UI, experienced	0.03%–8.36%	$8,000
Income tax, standard	0.5%–3.5%	No limit

Layer 3, county & city: no payroll tax, but a wage floor

No county or city in Arizona levies its own payroll or income tax withheld by employers. The local layer shows up as minimum wage, not as tax.^[9]

The state minimum wage is $15.15 an hour, effective 2026-01-01. The tipped cash wage is $12.15. 2 local jurisdictions set a higher floor. Flagstaff and Tucson run their own minimum wage ordinances that sit above the state rate. Tucson is $15.45 an hour for 1 January through 31 December 2026 under the Tucson Minimum Wage Act. Flagstaff resets its rate each January by the Consumer Price Index with a floor of $2.00 above the state rate, and it posts the highest figure in Arizona, so confirm the current number with the city before running payroll there. State rate is reindexed to the Consumer Price Index each 1 January^[9]

Overtime exemption is a separate test. A salaried employee is exempt from overtime only above $35,568 a year ($684.00 a week) federal FLSA, and only if the duties test is also met. Paying a salary is not by itself enough.^[13]

FAQ

Arizona payroll FAQs

Multiply gross taxable wages by the percentage the employee elected on Form A-4. The choices are 0.5, 1.0, 1.5, 2.0, 2.5, 3.0 and 3.5%. There are no allowances or bracket tables to work through, which makes Arizona one of the simplest states to run, but it also means the employee owns the accuracy of the result.

Withhold at 2.0%. Arizona requires the employer to apply that default rate if the form is not completed within five days of hire, and it stays in place until the employee elects a different percentage. Keep chasing the form anyway, because 2.0% often under-withholds and the shortfall lands on the employee at filing time.

It depends on your average Arizona withholding over the prior four quarters. Under $200 can file annually on Form A1-APR. More than $200 up to $1,500 files quarterly on Form A1-QRT. Above $1,500 you follow your federal deposit schedule, so monthly, semi-weekly or next business day, and still file Form A1-QRT each quarter.

A new employer that is not a successor to a liable employer is assigned 2.00% for a minimum of two calendar years, on the first $8,000 of each employee’s wages. After that DES computes a reserve ratio rate from the annual chart, which for 2026 runs from 0.03% for the strongest positive accounts up to 8.36% for the deepest negative accounts.

No. The statutes requiring the 0.10% Job Training Tax were repealed effective 1 January 2016, so unemployment insurance is the only DES payroll assessment. If your payroll software still carries a job training line for Arizona, switch it off before it creates a phantom liability.

The higher one. Tucson’s own ordinance sets $15.45 an hour for 2026 against the state’s $15.15, so Tucson employees get 15.45. Flagstaff runs its own ordinance too, reset each January by the Consumer Price Index with a floor of $2.00 above the state rate, and it posts the highest figure in the state, so confirm the current Flagstaff number with the city.

$8,000 per employee per calendar year. Once an employee reaches that in wages from you, no further unemployment tax is due on that employee for the rest of the year. The count restarts on 1 January and does not carry over from a previous employer.

$15.15 an hour. 2 local jurisdictions set a higher rate, so check the rate for the location where the employee actually works. The tipped cash wage is $12.15.

April 30, July 31, October 31, January 31. A return is delinquent the day after the deadline even if the tax itself was paid on time, so file the return whether or not you can pay.

Verification

Sources & methodology

Methodology: every rate, threshold and due date on this page was taken from the administering agency’s own published material for the 2026 tax year, checked on Oct 1, 2026. Where a federal figure applies it comes from the IRS, SSA or US Department of Labor. 5 data points on this page could not be confirmed against a primary source and are either omitted or marked as not published, rather than estimated. Rates change, and some change mid-year, so confirm against your own rate notice before running a payroll.

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