How to Do Payroll in Arizona

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The “arizona payroll taxes” is a process that most employers have to go through. Arizona has some different rules and regulations for payroll, so it’s important to know what you’re doing.

When it comes to payroll processing, Arizona is a typical state. With a few exceptions, it follows government requirements. The following are a few of these exclusions.

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Step-by-Step Instructions for Payroll in Arizona

Step 1: Register your company as an employer. You’ll need your Employer Identification Number (EIN) and an account with the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2: Register with the Arizona Department of Revenue. You must register with the Arizona Department of Revenue in Arizona. Fill out the Arizona Joint Tax Application to do so (Form JT-1). This combination form is used to register for unemployment insurance, withholding tax, transaction privilege tax, and use tax. If you need assistance, the Arizona Department of Revenue offers a business handbook.

Step 3: Create a payroll system. You’ll need to set up payroll and a pay schedule, as well as figure out how you’ll pay workers and handle taxes and deductions, among other things. You have the option of doing your own payroll, using an Excel payroll template, or using a payroll service. Each choice has its own set of benefits and drawbacks.

Collect employee payroll paperwork in step four. Onboarding is the optimum time to gather payroll paperwork. W-4, I-9, and Direct Deposit information are all included on Forms for Payroll. You must also file Form A-4 in Arizona.

Collect, evaluate, and approve time sheets in step 5. You may choose from three options:

Step 6: Work out your payroll and pay your staff, including taxes. You have a range of options for paying your staff (i.e., cash, check, direct deposit, pay cards). EFTPS should be used to pay federal taxes.

Step 7: Register with the federal and state governments to file payroll taxes. Forms and instructions for submitting federal taxes, including unemployment taxes, are available from the IRS. The IRS also allows you to purchase official tax forms. You must submit withholding tax on a yearly and quarterly basis for Arizona state taxes. You’ll utilize form A1-APR to submit your yearly withholding tax. You’ll utilize form A1-QRT to record quarterly withholdings. These paperwork and instructions may be found here. It’s worth noting that if workers don’t complete a W-4, you’ll be required to withhold 2.7 percent for state taxes by default.

While all companies are required to file quarterly and yearly reports, Arizona has its own set of procedures for paying withholding taxes to the state. This is calculated based on the total amount of withholding taxes that have been paid. For current company, Arizona utilizes the average of the prior four quarters.

The Arizona Withholding Tax Payment Schedule is governed by the Arizona Withholding Tax Payment Schedule Rules.

The next table explains how to compute your average for the preceding table for enterprises in their first year of operation.

Calculation of the Average Withholding Tax in Arizona

The Arizona Department of Economic Security utilizes the information you provide on the Arizona Joint Tax Application to evaluate if you are obligated to pay state unemployment insurance taxes (SUTA).

Step 8: Keep track of your payroll data by documenting and archiving them. It is critical to keep records for all workers, even those who have left your organization, for many years. Please visit our post on preserving payroll records for further information on which documents to maintain.

The state of Arizona requires you to keep the following records for four years:

- - - - All check stubs and checks that have been canceled
      - Records of cash receipts and disbursements
      - Records of accounting (e.g., payroll journal, general journal, and general ledger)
      - Tax returns from the federal and state governments
      - Copies of payroll tax returns (W-2s and W-3s)
      - For each pay period, you must:
        
        Each pay period’s start and finish dates are shown here.
        
        For each pay month, the total amount paid and the day it was paid
        
        The most workers worked on each weekday, as well as the number of employees that worked on that day.
      - The following are the requirements for each employee:
        
        Information about your life (first and last name, Social Security number)
        
        Dates of employment (hiring, rehire, and/or return to work)
        
        Information about the end of the project (termination date and reason)
        
        For each pay period and quarterly, the amount paid to each employee.
        
        Date and amount of any extra payments (bonuses, gifts, and/or commissions, for example)
        
        Location of employment

Step 9: Complete your year-end payroll tax returns. W-2s (for workers) and 1099s (for non-employees) are the government documents that must be completed (for contractors). Employees and contractors should get these forms by January 31 of the following year. W-2s from the state of Arizona are necessary, and these papers must be submitted by January 31.

Please read our basic guide on how to manage payroll for more general information that applies to companies in all states.

Arizona Payroll Laws, Taxes & Regulations

Income taxes, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes are all required by federal law. Social Security and Medicare taxes, often known as FICA taxes, are withdrawn from each employee’s salary at rates of 6.2 percent and 1.45 percent, respectively; you’ll also pay a corresponding sum out of your bank account. On the first $7,000 paid to each employee in a given year, the FUTA rate is 6.0 percent.

Taxes in Arizona

There are a few things in Arizona that aren’t covered by federal rules. Income Taxes in Different States, as well as regulations for unemployment insurance, workers’ compensation, and Minimum Pay Period, are all in place.

Income Taxes in Different States

Arizona has four income tax rates and is a progressive income state. Below are two tables (one for single/married filing separately and one for married filing jointly).

Unemployment Insurance in the State

For new employers that have been in business for less than two years, Arizona’s unemployment tax rate is 2%. After the third year, your rate is determined by the amount of taxes you pay, the amount of unemployment benefits you get, and the size of your yearly taxable payroll. The rate in 2022 might range from 0.08 percent to 20.93 percent. For 2022, the taxable wage basis for unemployment is $7,000.

Compensation for Employees

You are required to provide Compensation for Employees for employees in Arizona. Arizona is also a no-fault state; this means all employees are required to receive medical benefits and compensation no matter what caused their job-related accident.

The cost of Compensation for Employees insurance is around 70 cents for each $100 payroll you processed. For example, a company that processes $500,000 of payroll can expect to pay around $3,500 in insurance.

Minimum Wage & Tips

The majority of employment demand that you pay at least the minimum wage. If you have any questions about the federal exemption criteria, please contact us at: Federal Minimum Wage Exemptions

For non-tipped workers in Arizona, the current minimum wage is $12.80 per hour. Employers in Arizona are allowed to collect up to a $3.00 tip credit for tipped workers under state law, bringing the tipped minimum wage to $9.80 per hour.

Note that the city of Flagstaff’s $15 hourly minimum pay is greater than the state’s minimum wage.

Overtime

When it comes to overtime, Arizona follows federal standards. If your workers work more than 40 hours in a workweek, you must pay 1.5 times their usual hourly rate. Please see our guide on calculating overtime for more details.

Employees Can Be Paid in a Variety of Ways

You may pay workers in Arizona using normal payment methods. Checks, cash, pay cards, and direct deposit are all available. You are not, however, compelled to pay any workers in cash or by check. If your organization decides to pay all workers electronically but the employee refuses to supply direct deposit information, you may give him or her a pay card. Each deposit must allow the employee to make one free withdrawal, and all costs must be disclosed to the employee.

Minimum Pay Period

Employees must be paid twice a month in Arizona. These pay dates can’t be more than 16 days apart, so you may only pay workers biweekly or semimonthly, not monthly.

Pay Stub Regulations

If your employee’s wages are paid via bank deposit or pay cards, you must produce a paper or digital account of their earnings and withholdings in Arizona.

Download one of our free pay stub templates if you need a template to make your own pay statements. You may print and use them right away since they’re already formatted.

Payroll Deduction Regulations

There are no particular restrictions in Arizona that govern what may be taken from an employee’s paycheck. The following are examples of common deductions:

- - - - Taxes
      - Levies and Garnishments
      - Benefits
      - Reimbursements

Laws Regarding Final Paychecks

Depending on whether the individual quit (voluntary termination) or was fired by the employer, Arizona has varying rules around last payments (involuntary termination).

- - - - If you leave on your own own, you must be paid on the following regularly scheduled pay period.
      - Involuntary Termination: Must be paid within seven business days after termination, or at the start of the following regularly scheduled pay period, whichever comes first.

HR Laws in Arizona That Affect Payroll

With the exception of sick leave and child labor regulations, Arizona HR laws mostly follow federal norms.

Reporting on New Hires in Arizona

Arizona mandates that you report new hires within 20 days of the hire date. You can report on using the Reporting on New Hires in Arizona Form.

Breaks, Lunches & Time-off Requirements

Sick leave is required for all workers in Arizona, regardless of whether they work full-time or part-time. Aside from that, every other leave is governed by federal law.

- - - - Breaks and Lunches: Employers in Arizona are not required to give workers with breaks.
      - Vacation and Sick Leave: There are no vacation leave restrictions in Arizona. There are, nevertheless, certain conditions for sick leave. Every 30 hours worked, all employers are obligated to offer one hour of sick time. You must give at least 40 hours of sick time each year if your organization has more than 15 workers. You must give at least 24 hours of sick leave per year if your firm has less than 15 workers. These hours may be added in whole at the start of the year or earned on a pay period by pay period basis. These hours do not have to be paid out when the job is terminated.
      - Family Leave: Arizona does not have a separate state law regarding family leave. Employers must abide by the federal law in the Family and Medical Leave Act (FMLA). This law is for companies with more than 50 employees for 20 or more weeks in the current or previous year. Employees can take FMLA leave if they have worked at the company for at least a year, with 1,250 hours worked in the previous year, and if their physical Location of employment has 50 or more employees in a 75-mile radius. To learn more about the Family and Medical Leave Act, please see the Department of Labor’s Guide to FMLA.

Disability Insurance Provided by the State

Arizona has no state-run disability program and does not compel businesses to have disability insurance. However, having that for both your staff and yourself is sensible.

Laws Concerning Child Labor

Individuals under the age of 16 are only allowed to work for a certain amount of time in Arizona. The following are the limitations:

The one exception to the above table is that after 7 p.m., no one under the age of 16 is allowed to make door-to-door sales.

It’s also worth noting that there are a few instances when federal law takes precedence over Arizona law. During the school year, federal law prohibits 14- and 15-year-olds from working more than 15 hours a week. It also states that 16-year-olds are not permitted to work after 7 p.m. at 9 p.m. on school evenings during evenings when there are no classes. If you want further information, please contact the Department of Labor’s Federal Wage and Hour Division.

Forms for Payroll

The federal and state forms listed below are required to provide proper pay for workers, as well as compliance payroll reporting and tax remittance for businesses.

Arizona Forms for Payroll

Federal Forms for Payroll

- - - - W-4 Form: Assists employers in calculating employee withholding tax.
      - W-2 Form: Shows total annual earnings (one per employee)
      - W-3 Form: This form summarizes all workers’ total annual pay and taxes.
      - Form 940 is used to calculate and submit unpaid unemployment taxes to the Internal Revenue Service (IRS).
      - Form 941 is used to report income and FICA tax withholding on a quarterly basis.
      - Annual income and FICA tax withholding are reported on Form 944.
      - 1099 Forms: Provides pay information and amounts to contractors to help them calculate their taxes.

Arizona Payroll Tax Resources & Sources

Conclusion

Arizona payroll differs from other states by the way it structures Income Taxes in Different States and Compensation for Employees requirements, as well the timing on when employees should be paid. Be sure to follow deadlines and mandates by federal, state, and local governments. If you are looking to make your payroll process easier, sign up for the 30-day free trial of Square Payroll.