Written and originally published by the Arizona Department of Revenue,
Changes to Arizona Withholding for Wages Paid After December 31, 2010.
The Department prescribed new withholding tables in early 2010 in accordance with Senate Bill 1185 (Laws 2009, 1st Reg. Session, Chapter 2). The new tables were effective for wages paid after June 30, 2010.
The new withholding tables are based on a percentage of gross taxable wages. “Gross taxable wages” is the amount that meets the federal definition of “wages” contained in IRC § 3401 and that will generally be included in box 1 of the employee’s federal Form W-2 at the end of the calendar year (i.e. gross wages net of pretax deductions, such as the employee’s portion of health insurance premiums).
Each employee subject to Arizona income tax withholding was required to complete a new Arizona Form A-4.
The Department has revised Arizona Form A-4 effective for wages paid after December 31, 2010.
The changes include:
■Providing an additional withholding percentage of 0.8%. Previously available percentages are unchanged.
■Removal of the $15,000 annual compensation threshold. All seven withholding percentage rates are available to all employees, regardless of annual compensation.
■Relaxing the exemption requirements. The employee only has to expect that there will be no Arizona tax liability in the current taxable year (instead of not having a liability in the prior year and not expecting one in the current year). However, this withholding exemption election will need to be renewed annually, similar to federal requirements.
Unlike the previous changes effective July 1, every employee is not required to complete a new Arizona Form A-4. Employees wanting to renew their withholding exemption are required file a new Form A-4 with their employer. Employees wanting to take advantage of the lower withholding percentage must file a new Form A-4 with their employer. Individuals with a current withholding percentage elected on Arizona Form A-4P or Arizona Form A-4V may also file a new form to take advantage of the new withholding percentage.
Withholding percentage options for wages paid after December 31, 2010.
Rates are a percentage of gross taxable wages.
Percentage Rates
0.8%
1.3%
1.8%
2.7%
3.6%
4.2%
5.1%
The 2011 Arizona Form A-4, Arizona Form A-4P, and Arizona Form A-4V are available on the
Department’s website at http://www.azdor.gov/Forms/Withholding.aspx
Arizona Withholding Tax Basics For Arizona purposes, an employer must withhold Arizona income tax from the payment of wages to an employee whose compensation is for services performed in Arizona.
Arizona income tax withholding is a percentage of the employee’s gross taxable wages.
“Gross taxable wages” is the amount that meets the federal definition of “wages” contained in IRC § 3401 and that will be included in box 1 of the employee’s federal Form W-2 at the end of the calendar year (i.e. gross wages net of pretax deductions, such as the employee’s portion of health insurance premiums). Employees may also have their employer withhold an additional amount.
The employee completes Arizona Form A-4, Employee’s Arizona Withholding Percentage Election, to elect an Arizona withholding percentage. Amounts that are considered wages for federal tax purposes are also considered wages for Arizona income tax and withholding purposes.
Amounts that are included in wages and are subject to mandatory federal withholding are subject to mandatory Arizona withholding. Amounts that are excluded from wages and are excluded from mandatory federal withholding are excluded from mandatory Arizona withholding.
An employer must withhold Arizona tax from wages paid for services performed within Arizona regardless of whether the employee is a resident or nonresident of Arizona. However, there are two exceptions to the general mandatory withholding requirements for nonresident employees temporarily performing services for their employer in Arizona. Although a nonresident employee may be exempt from Arizona income tax withholding, the employee may be required to file a nonresident Arizona income tax return if the employee meets the filing requirement.
An employer may not have to withhold Arizona tax from wages paid to a nonresident performing services in Arizona if:
■The employee is physically present in Arizona for less than 60 days in a calendar year for the purpose of performing a service that will benefit the employer; AND
■The employer is an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in Arizona, or of a related entity having more than 50% direct or indirect common ownership.
An explanation of this exemption (including examples) is included in the Employer’s Instructions for the Arizona Form A-4.
If you need more information about the article above, contact Schutte & Hilgendorf, CPAs serving all of Yavapai County with accounting, tax preparation and planning, auditing, bookkeeping, payroll, and QuickBooks consulting.
