Arizona Withholding laws & HR compliance analysis

Arizona Withholding: What you need to know

Arizona employers are required to deduct state income tax from employees' earnings during each payroll period. Arizona withholding is a percentage of the employee’s gross taxable wages, as defined for federal taxation purposes.
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Withholding applies to:
• Wages of residents for income earned in Arizona.
• Wages of nonresidents for income earned in Arizona. Residents of California, Indiana, Oregon, and Virginia may apply for an exemption from Arizona withholding on Form WEC.
Generally, employees who are subject to federal income tax withholding are also subject to state income tax withholding. Agricultural, domestic, and most other employees who are exempt from federal withholding are also exempt from state withholding.
Withholding applies to all wages, including cash payments such as salaries, commissions, and bonuses, as well as the market value of noncash payments such as meals, lodging, and goods. Generally, compensation that is subject to federal withholding is also subject to state withholding. State income tax definitions conform to the federal tax provisions (AZ Stat. Sec. 43-105).
Employers may withhold Arizona taxes from the wages of residents earned outside of Arizona as a service to those employees.
Businesses considering the use of contract workers are cautioned to consult with their tax professional for advice.
The amount required to be withheld is based on a table issued by the Arizona Department of Revenue (ADOR). The withholding table is based on a percentage of gross taxable wages that meets the federal definition of "wages" reported in box 1 of the employee's federal Form W-2. Employees subject to Arizona income tax withholding and working in Arizona ...

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