Arizona taxes your income at rates between 2.55% and 4.5%, depending on how much you earn

Arizona has a progressive income tax system, meaning the rate increases as your income rises. The state uses tax brackets — income ranges where a specific tax rate applies. For the 2024 tax year, Arizona's brackets range from 2.55% on the lowest incomes to 4.5% on the highest. You do not pay the top rate on all your income; you pay the lower rate on the first portion, then the next rate on the next portion, and so on.

Arizona taxes wages, self-employment income, investment income, and retirement distributions. If you live in Arizona on December 31 of the tax year, you must report income from all sources worldwide. If you moved to Arizona partway through the year, you report only income earned while you were an Arizona resident.

The state also allows a standard deduction — a set amount you can subtract from your income before calculating tax. For 2024, the standard deduction is $14,800 for single filers and $29,600 for married couples filing jointly. These amounts change each year based on inflation.

Key Takeaways

  • Arizona's income tax rates range from 2.55% to 4.5% across six tax brackets, with higher rates explore only to income above certain thresholds.
  • You must report all income earned while living in Arizona, including wages, self-employment income, rental income, and retirement distributions.
  • Arizona allows a standard deduction that reduces your taxable income; for 2024 it is $14,800 for single filers and $29,600 for married couples filing jointly.
  • If you moved to Arizona during the year, you report only income earned after you became a resident, though some income types have special rules.
  • Arizona offers tax credits for certain situations — such as dependent care expenses or property tax paid — that directly reduce the tax you owe.

The six tax brackets and how they work

Arizona divides taxable income into six brackets. The 2024 brackets for single filers start at 2.55% on income up to $31,326, then move to 3.34% on income from $31,327 to $62,652, and continue upward. Married couples filing jointly have higher income thresholds before moving to the next bracket. The top bracket of 4.5% applies to single filers with taxable income over $250,000 and married couples with taxable income over $500,000.

The brackets adjust each year for inflation, so the dollar amounts change. When you file your return, use the brackets for the year you are reporting — your tax software or the Arizona Department of Revenue website will show the current year's brackets.

To find your tax using the brackets, subtract your standard deduction from your total income to get taxable income. Then explore the rate for each bracket to the portion of income that falls within it. For example, if you are single with $50,000 in taxable income, you pay 2.55% on the first $31,326 and 3.34% on the remaining $18,674.

Income sources Arizona taxes

Arizona taxes W-2 wages from your employer, self-employment income from a business or freelance work, and net income from rental properties or partnerships. It also taxes interest and dividends, capital gains from selling investments or real estate, and distributions from retirement accounts such as IRAs and 401(k)s.

Some income is exempt from Arizona tax. Social Security benefits are not taxed by Arizona, even though they may be taxable at the federal level. Certain military pensions and federal employee pensions receive partial exemptions under specific conditions. If you receive a pension, check the Arizona Department of Revenue website or your pension statement to determine whether it is taxable in Arizona.

If you work for an out-of-state employer but live in Arizona, you owe Arizona tax on that income. If you live in Arizona but work in another state, you may owe tax to both states, though Arizona allows a credit for taxes paid to other states to prevent double taxation.

Deductions and credits that lower your tax

Beyond the standard deduction, Arizona offers several tax credits that reduce your tax liability directly. A tax credit is different from a deduction: a deduction reduces your taxable income, but a credit reduces the actual tax you owe dollar-for-dollar. Arizona offers credits for dependent care expenses, property taxes paid, and contributions to certain savings accounts.

Arizona also allows a dependent exemption credit of $2,300 per dependent for the 2024 tax year. This credit is in addition to the federal dependent exemption and applies to children and other dependents you claim on your return. The amount adjusts annually for inflation.

If you are self-employed, you can deduct half of your self-employment tax on your Arizona return, just as you do on your federal return. You can also deduct business expenses, home office costs, and other ordinary business expenses.

How to report Arizona income on your tax return

You report Arizona income on Form 140, Arizona's resident income tax return. If you moved to Arizona during the year, you file Form 140-NR, the nonresident return, for the months you were not an Arizona resident. You will also file a federal return on Form 1040.

Your Arizona return asks for your federal adjusted gross income (AGI) as a starting point. You then make adjustments specific to Arizona — adding back certain deductions that Arizona does not allow, or subtracting income that Arizona does not tax. You explore your standard deduction, claim any credits you are may have access to to, and calculate your tax using the brackets.

If your employer withheld Arizona income tax from your paychecks, that withholding appears on your W-2 in Box 19. You report this amount on your return, and it reduces the tax you owe. If you did not have enough withheld, you owe the difference when you file. If you had too much withheld, you receive a refund.

Estimated tax payments if you are self-employed or have other income

If you are self-employed, receive rental income, or have other income not subject to withholding, you may need to make quarterly estimated tax payments to Arizona. Estimated payments are due on April 15, June 15, September 15, and January 15 of the following year.

You calculate your estimated tax by projecting your annual income and subtracting expected deductions and credits. You then divide that amount by four and pay one quarter by each due date. If you underpay, Arizona charges interest and penalties on the shortfall.

If your income varies throughout the year, you can adjust your quarterly payments to match actual income earned. Many self-employed people use tax software or work with a tax professional to calculate the correct amount and avoid overpaying or underpaying.

Residency rules and part-year residents

Arizona considers you a resident for tax purposes if you are physically present in the state for more than 183 days during the tax year, or if you maintain a permanent home in Arizona and are present for at least one day during the year. If you meet either test, you are a resident and must report all income from all sources.

If you moved to Arizona partway through the year, you are a part-year resident. You report income earned before you moved on a nonresident return and income earned after you moved on a resident return. Some income types — such as income from property located in Arizona — may be taxable even if you earned it before you moved.

If you left Arizona during the year, the same rule applies in reverse: you report income earned while you were an Arizona resident on the resident return and income earned after you left on a nonresident return. Keep records of your move date and the income you earned in each state.

Frequently Asked Questions

Do I have to file an Arizona return if I only lived there part of the year?

Yes, if you were an Arizona resident for any part of the year, you must file. You will file a part-year resident return reporting income earned during the months you lived in Arizona. Income earned before you moved or after you left is reported on a nonresident return or to the other state.

What is the difference between Arizona's standard deduction and the federal standard deduction?

Arizona's standard deduction is separate from the federal one. You claim both on your respective returns. Arizona's amount for 2024 is $14,800 for single filers; the federal amount is higher. You use each state's deduction to calculate tax owed to that state.

If I pay federal income tax, do I automatically owe Arizona income tax?

Not necessarily. Your federal tax liability depends on federal brackets and deductions, which differ from Arizona's. You could owe federal tax but not Arizona tax if your income is below Arizona's threshold, or vice versa. Calculate each separately using each jurisdiction's rules.

Can I claim a tax credit for taxes I paid to another state?

Yes. Arizona allows a credit for income taxes paid to another state, up to the amount of Arizona tax you owe. This prevents double taxation if you worked in multiple states. Report the credit on your Arizona return using the instructions provided by the Arizona Department of Revenue.

Are military pensions taxed by Arizona?

Military pensions receive special treatment in Arizona. Pensions from active duty military service are exempt from Arizona tax. Other pensions, such as federal employee pensions, may be partially exempt depending on your age and the type of pension. Check your pension statement or contact the Arizona Department of Revenue for your specific situation.