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January 21, 2021
2021-0146

Employers not required to withhold new surcharge from high income individuals; Arizona releases state withholding Form A-4

According to a Department tax policy representative, employers are not be required to withhold from high-income employees the new 3.5% surcharge that took effect on January 1, 2021. Instead, these individuals would be required to pay the surcharge with their 2021 state individual income tax returns, due in 2022.

Additionally, the Department representative told us that for calendar year 2021 estimated tax payments are not being required pursuant to the new surcharge. (Email response to inquiry.)

The Arizona Department of Revenue released the 2021 Form A-4, Employee's Arizona Withholding Election, to its website reflecting the same withholding tax rates that applied in 2020. The form confirms that employers are not required to withhold the new high-income tax surcharge provided for under voter-approved Proposition 208.

Voters approved an additional income tax surcharge for high-taxable income individuals

As we reported, Arizona voters approved Proposition 208 that, effective January 1, 2021, imposes an additional 3.5% income tax surcharge on individuals with annual taxable income exceeding $250,000 for single and married filing separately ($500,000 for married and head of household filers). The revenue generated from this income tax surcharge will fund public education.

The proposition language did not specify how the additional surcharge would be collected. (EY Tax Alerts 2020-2595, 10-30-2020; 2020-2773, 12-1-2020.)

Ernst & Young LLP insights

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)
   • Kenneth Hausser (kenneth.hausser@ey.com)

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