Arizona State Income Tax Withholding
Last Updated: January 2026
Overview
Arizona has a flat state income tax rate of 2.5%. However, Arizona uses a unique withholding system where employees elect their own withholding percentage on Form A-4. The elected withholding rate does not have to match the actual 2.5% tax rate -- employees may choose to withhold more or less based on their individual tax situation.
2026 Tax Rate
| Tax Type | Rate |
|---|---|
| Flat Income Tax Rate | 2.5% |
Employee-Elected Withholding Percentages
Arizona Form A-4 allows employees to select a withholding percentage from the following options:
| Withholding Rate | Notes |
|---|---|
| 0.0% | Zero withholding (must qualify -- see below) |
| 0.5% | Minimum withholding |
| 1.0% | |
| 1.5% | |
| 2.0% | Default rate (applies when no A-4 is filed) |
| 2.5% | Matches the actual tax rate |
| 3.0% | |
| 3.5% | Maximum withholding |
Employees may also request an additional flat dollar amount be withheld per pay period.
State W-4 Form
Arizona uses Form A-4 (Employee's Arizona Withholding Election) instead of a state W-4. Employees select their preferred withholding percentage on this form.
Default Withholding Rate
If an employee does not submit Form A-4, employers must withhold at the 2.0% default rate.
Zero Withholding Election
Employees may elect zero withholding only if:
- They had no Arizona income tax liability in the prior year, and
- They expect no Arizona income tax liability in the current year
This election requires Form A-4 and must be renewed annually.
ProPay Setup
Arizona withholding in ProPay uses a percentage-based method instead of exemptions. See Arizona Withholding Setup for step-by-step instructions on configuring Arizona employees in ProPay.
No Local Income Taxes
Arizona does not have local income taxes. The state withholding rate applies uniformly across all jurisdictions.
Reciprocal Agreements
Arizona has reciprocal income tax agreements with:
- California
- Indiana
- Oregon
- Virginia
Residents of these states working in Arizona may be exempt from Arizona income tax withholding. Employees must file the appropriate exemption form with their employer.
Special Considerations
- Federal Withholding: Federal income tax withholding still applies to all employees
- FICA Taxes: Social Security and Medicare taxes still apply
- Unemployment Insurance: Arizona requires employer unemployment insurance contributions