How to Compute State Witholding Tax in Arizona

Arizona changed the way it calculates payroll withholding beginning in July 2010. Previously, it had been a percentage of your federal taxable income. As of July 2010, it is a percentage based on your gross taxable wages (the amount you see in box 1 of your W-2 form). The Arizona Department of Revenue website has interactive forms on line that will help you through the process.

Step 1

Determine your gross compensation for the previous year, including the current pay period. If you don't have a full year, use compensation for the previous 3 ½ months, divide that amount by 3.5 and multiply the answer by 12 to get a pro-rated annual salary. If the amount is under $15,000, you will not have state withholding deducted from your pay.

Step 2

Divide the annual salary amount by the number of pay periods in the year. If you get paid every other week, for example, you will divide your annual pay by 26.

Step 3

Multiply this answer by the withholding amount you selected on Arizona form A-4. Your choices were: 1.3 percent (0.013), 1.8 percent (0.018), 2.7 percent (0.027), 3.6 percent (0.036), 4.2 (0.042) percent and 5.1 percent (0.051). You can only select 1.3 percent if you make under $18,000.

Step 4

Add any additional amount you have being deducted per pay period to this answer, and you have the total amount of state tax being withheld from your pay.

Tip

Take your previous year’s state tax owed and divide it by the number of pay periods in the year. If you aren’t withholding at least this much in the current year, you should consider having additional withholdings made from your pay.

Warning

If you don’t withhold at least 90 percent of your taxes owed in the calendar year, you may have to pay a penalty.

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