How to Calculate Arizona State Income Tax

Arizona has a progressive income tax system.

Arizona's state income tax rates are relatively low, but the state taxes higher incomes at higher rates. To do this, it employs a progressive system of marginal tax brackets, which provide for higher tax rates on income that exceeds statutory thresholds.

Figure out Your Arizona State Income Tax

Step 1

Have your W-2 earnings statement, supplied by your employer, on hand when you sit down to calculate your Arizona state income tax. If you're self-employed or the owner of a business, you'll determine your income from the ledger and other records you keep. Be accurate and honest.

Step 2

Add up all the income you have received throughout the year from all sources--work, capital gains, investments, inheritances, prizes, grants and bursaries.

Step 3

Total the tax deductions for which you qualify. Everyone enjoys a basic federal deduction, but you may qualify for others, depending on your situation. This is particularly true of business owners and supporters of dependents.

Step 4

Subtract the total amount of your tax deductions from your annual income. The remainder is your taxable income.

Step 5

Determine your marginal tax rate. The lowest individual tax rate, applicable to taxable incomes of $10,000 and lower, is 2.59 percent. For higher incomes, marginal tax rates apply as follow: for incomes from $10,001 to $25,000, the marginal rate is 2.88 percent; for incomes from $25,001 to $50,000, the marginal rate is 3.36 percent; for incomes from $50,001 to $150,000, the marginal rate is 4.24 percent, and taxable income in excess of $150,000 is subject to a 4.54 percent tax. Matginal tax rates apply only to a portion of your income - the 3.36 percent rate, for instance, applies only to that portion of your income from $50,001 to $150,000.

Step 6

Calculate your tax by first determining your marginal tax rate. If your taxable income is $10,000, for instance, your tax rate is 2.59 percent, and you'd owe $259. If your income is $15,000, your marginal tax rate is 2.88 percent. That means your tax is 2.59 percent of the first $10,000 ($259) plus 2.88 percent of the next $5,000 ($144), or $403. If your taxable income is exactly $25,000, your tax is $691, which is 2.59 percent of $10,000 plus 2.88 percent of $15,000. If your taxable income is $33,000, your marginal tax rate is 3.36 percent, which means you'd pay 3.36 percent of $8,000 - the amount your income exceeds $25,000 - PLUS $691, the tax on $25,000, for a total of $959.80.

Tip

If you're using published tax tables, you generally won't have to make as many calculations because the tables are set up to display the tax on lower brackets. For example, the tax tables generally read "For earnings between $25,000.00 and $50,000, you'll pay 3.36% plus $691.00," so that all you have to calculate is the tax on the income over $25,000.

Most states revise their tax tables annually. The figures presented here are for the 2013 tax year. Consult the Arizona Department of Revenue to stay abreast of any changes in state taxation rates and regulations (see Resources).

Warning

Avoid the common error of applying your marginal tax rate to your total income, which will generate an overpayment of taxes.

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