Arizona Changes to Withholding for Wages Paid After June 30, 2010
The State of Arizona has changed how withholding on wages is calculated. The amount withheld is now a percentage of taxable gross wages rather than the previous method which was calculated based on a percentage of the federal withholding.
All employees subject to Arizona income tax must fill out a new Arizona Form A-4 by June 30, 2010 so the correct amount may be withheld effective July 1, 2010. See table below to determine new withholding rates:
Old Withholding Rate New Withholding Rate
20.3% 1.8%
24.5% 2.7%
26.7% 3.6%
33.1% 4.2%
39.5% 5.1%
Please note only employees whose compensation is less than $15,000 annually may claim the following amount:
10.7% 1.3%
According to Aaron Blau, EA, CPA at Alan Blau & Associates, LTD., for the vast majority of his clients, withholding at the 2.7% rate is the most appropriate withholding rate. If you have over $75,000 ($150k MFJ) of taxable income, you will likely choose a higher withholding rate.
If you are concerned about owing taxes, you can always withhold at a higher rate. If you choose the higher 3.6% rate, the differential is only $9 per $1,000 of taxable gross wages from the base 2.7%. Choosing the even higher 4.2% rate will result in a $15 difference per $1,000 of wages.
*Please also note that if an employee met the eligibility requirements to claim 0% under the old withholding system, they will continue
to be eligible to claim 0% under the new system. See the website below if you have questions about 0% withholding eligibility requirements.
If you would like more information about the transition, please visit the Arizona Department of Revenue website at: www.azdor.gov/Business/WithholdingTax.aspx
You may direct employees to a new blank Arizona Form A-4 online at: www.azdor.gov/Forms/Withholding.aspx
If you still have any questions about the change in withholding rates you can reach Aaron and his knowledgeable staff at 480 946-7732 to schedule an appointment with one of our tax professionals to ensure this transition happens as smoothly as possible. For more information about his firm, check out their website at www.blauassoc.com.
