An omnibus budget bill enacted in mid-2019 (HB 2757) makes several changes to Arizona state individual income tax law, including conformity with the Internal Revenue Code as of January 1, 2019, and consolidation of the 2019 income tax brackets.

The 2020 Form A-4, Employee's Arizona Withholding Election, from which the employee elects the percentage of withholding from gross taxable wages, shows the same seven percentage options (0.8% to 5.1%) as for 2019.

It is required that new employees submit this form to their employers, in addition to the federal Form W-4. If the employee fails to submit Form A-4, the employer must withhold 2.7% of the employee's wages until the employer receives a completed Form A-4 from that employee. Current employees who previously submitted Form A-4 need not submit a new 2020 form, but may do so to elect a different Arizona withholding percentage or to change any extra amount to be withheld from their paycheck.

Supplemental wages

Arizona law and regulations do not allow for a flat supplemental rate of withholding.

Budget bill provisions affecting individual income tax law

According to a news release by the Arizona Department of Revenue, the following are the changes to state individual income tax law, beginning in 2020 and effective for tax year 2019:

• Arizona law matches the federal standard deduction amount ($12,200 for single/married filing separate, $18,350 for head of household; and $24,400 for married filing jointly).
• Personal and dependent exemption amounts are removed from Arizona law.
• A $100 child tax credit per dependent under age 17 is available, phasing out for high-income earners.
• Taxpayers may increase their standard deduction by 25% of the charitable donations that would have been claimed as an itemized deduction.
• The income tax schedule is reduced from the previous five tax brackets to four tax brackets, with a reduction in income tax rates within the brackets.

2020 withholding rates remain the same as for 2019

Arizona employers withhold state income tax from employee gross wages at the percentage the employee elects on Form A-4, Employee's Arizona Withholding Election. Employee Arizona gross wages are the same as those for federal tax purposes and should match the federal gross taxable wages shown for the year in box 1 of the employee's Form W-2.

Following are the withholding rates in effect for 2020 (unchanged from 2019):

Arizona Withholding Tax Tables

Arizona's current withholding tables are based on a percentage of gross taxable wages. All new employees subject to Arizona income tax withholding must complete Arizona Form A-4 within five days of employment. Existing employees may also complete the form to change the previous withholding amount or percentage.

Employees who expect no Arizona income tax liability for the calendar year may claim an exemption from Arizona withholding. This exemption must be renewed annually, similar to the federal Form W-4 requirement. Individuals with a current withholding percentage elected onArizona Form A-4P or Arizona Form A-4Vmay complete a new form to change the previous withholding amount or percentage.

2019 Forms W-2 due January 31, 2020

Employers must file the calendar year 2019 Form A1-R, Arizona Withholding Reconciliation Return, and Forms W-2by January 31, 2020. Employers with 250 or more Forms W-2 to file should submit these forms on CD or DVD along with Form A1-T, Withholding Transmittal of Wage and Tax Statements.

Payroll service companies filing Forms W-2 and the reconciliation return on behalf of clients must file all returns, and pay withholding taxes, electronically.

Mandatory electronic funds transfer thresholds to decrease

The Department has issued an updated Publication 650, Electronic Funds Transfer, to its website. For calendar year 2019, all taxes, except individual income tax, must be submitted by EFT if the taxpayer's liability is greater than or equal to $10,000 ($20,000 for years prior to 2019). The threshold decreases to $5,000 in tax year 2020 and $500 for tax year 2021 and after.

There is no change to the deadlines for quarterly withholding tax returns. If any additional withholding tax is due when filing the return, the publication says that the addition tax is due when filing the return and may be paid online or by sending a check or money order with the return.

Payroll service companies filing withholding returns on behalf of clients must file all returns and pay withholding taxes electronically.

For additional information, contact the Department at +1 602 255 3381 or +1 800 352 4090.

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