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Arizona Withholding Setup in ProPay

Overview

Arizona uses a percentage-based withholding system instead of exemptions or allowances. Employees elect their withholding percentage on Arizona Form A-4. ProPay calculates Arizona withholding as a flat percentage of gross taxable wages based on the rate you enter.

How Arizona Withholding Differs

Most states calculate withholding using tax brackets and allowances. Arizona is different:

  • The employee selects a withholding percentage on Form A-4
  • You enter that percentage in ProPay instead of exemptions
  • ProPay multiplies gross taxable wages by the elected percentage to calculate withholding

Available Withholding Rates (2026)

Arizona Form A-4 offers the following withholding percentages:

Rate Description
0.0% Zero withholding (employee must qualify)
0.5% Minimum
1.0%
1.5%
2.0% Default (used when no A-4 is filed)
2.5% Matches Arizona's flat income tax rate
3.0%
3.5% Maximum

Note: Arizona's actual income tax rate is a flat 2.5%. Employees may choose to withhold more or less depending on their tax situation.

Set Up Arizona Withholding in ProPay

Step 1: Enter the Withholding Percentage

  1. Go to Employees > Add or Change > select the employee.
  2. On the Tax tab, locate the State Exemptions field.
  3. Enter the withholding percentage from the employee's Form A-4.
    • Enter the percentage as a number (for example, enter 2.5 for 2.5%)
    • For zero withholding, enter 0
    1. Click Save.

    Step 2: Enter an Additional Withholding Amount (Optional)

    If the employee requests an additional flat dollar amount withheld per pay period:

    1. In the employee's Special Information screen, enter the additional amount in the State Additional Withholding field.
    2. ProPay adds this amount to the percentage-based withholding each pay period.

    Default Rate for New Employees

    If an employee has not submitted Form A-4, enter 2.0 in the State Exemptions field. Arizona requires employers to withhold at the 2.0% default rate until a Form A-4 is received.

    Troubleshooting

    Withholding amount seems incorrect

    1. Go to Employees > Add or Change > select the employee > Tax tab.
    2. Verify you entered the percentage rate (not the number of exemptions) in the State Exemptions field.
    3. Confirm the percentage matches the employee's Form A-4 election.
    4. Check that the employee's tax state is set to AZ.

    Employee wants zero withholding

    The employee must submit Form A-4 certifying they had no Arizona income tax liability in the prior year and expect none in the current year. Enter 0 in the State Exemptions field. This election must be renewed annually.

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