November 1, 2022 Arizona announces lower income tax withholding rates for 2022 and 2023
The Arizona Department of Revenue announced that SB 1828, enacted in 2021, substantially lowers individual income tax rates effective for tax year 2022 and 2023, and the current Form A-4, Arizona Withholding Percentage Election (rev. 1-1-2022), does not reflect these rate cuts. Accordingly, the Department has published a revised Form A-4 (10-28-2022), which employees may begin using immediately. The updated A-4 gives employees a range of withholding percentages as follows: 0.5%, 1.0%, 1.5%, 2.0%, 2.5%, 3.0% and 3.5% Previously, the A-4 gave employees a range of withholding percentages as follows: 0.8%, 1.3%, 1.8%, 2.7%, 3.6%, 4.2% and 5.1% The Department provides the following FAQs: What if the employee does not update their old Arizona Form A-4? The employer should select 2.0% on behalf of the employee. The new default Arizona withholding rate is 2.0%. What if the employee wants their Arizona taxes to be overwithheld? Employees will still have the option of selecting a higher Arizona withholding rate than their wages might dictate and there is still a line to add an additional amount of Arizona withholding. What should the employer do with the new completed A-4 forms? The employer should retain the A-4 with their employee and tax records. The employee may want to retain a copy for their records as well. Do not send the new A-4 form to the Arizona Department of Revenue. If the employer uses a substitute electronic A-4 form for their employees (rather than a paper A-4), can the electronic form simply be updated to reflect the new withholding rate percentages? Yes. Background SB 1828, enacted in 2021, included a measure to phase out the current graduated personal income rates and replace them with a flat tax of 2.5% in several phases crossing tax years 2022 through 2024. The tax cuts were contingent on meeting general fund revenue collection goals. Through October 28, 2022, employees could elect a percentage of withholding ranging from 0.8% to 5.1% on Arizona Form A-4. Now, the Department states that the tax rates to be reflected on the 2022 Arizona personal tax return will be 2.55% and 2.98% in accordance with SB 1828. Arizona Governor Doug Ducey announced that due to the state's surging economy, a letter was issued to the Arizona Department of Revenue with instructions to implement a 2.5% flat tax in tax year 2023, not in 2024 as originally anticipated. It is estimated that the average Arizona taxpayer will receive a 13% income tax reduction starting in 2023, saving families approximately $350 a year. ———————————————
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor ——————————————— EY Payroll News Flash
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