Arizona made its tax system simpler than most states. Beginning in 2025, all residents and nonresidents with Arizona-sourced income pay the same 2.5% flat income tax rate. There are no brackets to keep track of, which makes calculating your state tax liability straightforward. Still, questions remain: Who has to file a return? What types of income are exempt, and how does the flat tax affect retirees, workers, and investors? This guide breaks down the 2025 Arizona income tax structure with clear examples, filing thresholds, and key exemptions so you know exactly what to expect.
What Is Arizona’s Income Tax Rate in 2025?
Arizona has moved away from progressive tax brackets. In 2025, all taxpayers pay a flat 2.5% rate on taxable income. This applies whether you earn $30,000 or $300,000.
Key facts:
- Flat tax rate: 2.5% (lowest flat rate in the U.S.)
- Applies to: Wages, salaries, retirement distributions, investment income
- No brackets: Everyone pays the same rate
➡ If you want to see how this affects your paycheck, try the Arizona paycheck tax calculator.
Who Must File in Arizona?
Filing depends on your income threshold and residency status.
2025 Filing Thresholds (estimated):
- Single: $13,850
- Married filing jointly: $27,700
- Head of household: $20,800
If your gross income exceeds these amounts, you’ll need to file an Arizona return.
Arizona recognizes:
- Residents – taxable on all income
- Part-year residents – taxed on income earned while living in AZ
- Nonresidents – taxed only on Arizona-sourced income
What Income Is Exempt from Arizona Tax?
Not everything is taxed at 2.5%. Some income sources are partially or fully exempt:
- Social Security benefits: Not taxed in Arizona
- Military pay: Active-duty and retirement pay are fully exempt
- Public pensions: Up to $2,500 of certain pensions is exempt
- Long-term capital gains: 25% deduction, so the effective tax rate is 1.875%
➡ To compare net pay with these exemptions, check the Arizona paycheck deductions calculator.
From Brackets to a Flat Tax – A Short History
Arizona used to have multiple tax brackets. In 2022, lawmakers began phasing them out. By 2023, a single 2.5% flat rate applied to all taxpayers.
The change was promoted as a way to simplify tax filing and make Arizona more competitive with other states. Critics have noted the shift could reduce state revenue and affect long-term budgets.
How Much Will You Pay? Examples
Here’s a quick look at what the flat tax means for different income levels:
| Taxable Income | Tax Rate | Tax Owed |
|---|---|---|
| $30,000 | 2.5% | $750 |
| $60,000 | 2.5% | $1,500 |
| $100,000 | 2.5% | $2,500 |
| $200,000 | 2.5% | $5,000 |
This flat structure makes it easy to calculate your liability—just multiply your taxable income by 0.025.
How Arizona Compares to Other States
- Arizona: Flat 2.5%
- Colorado: Flat 4.4%
- California: Progressive, up to 13.3%
- Texas: No income tax
Arizona now has one of the lowest state income tax rates in the nation, making it attractive for both workers and retirees.
FAQs About Arizona Income Tax in 2025
Q: What is the Arizona state income tax rate in 2025?
A: A flat 2.5% on all taxable income.
Q: Do I still need to file if I’m retired in Arizona?
A: Possibly. Social Security is exempt, but pensions and retirement distributions may be taxable.
Q: Are capital gains taxed in Arizona?
A: Yes, but 25% of long-term capital gains are deducted before calculating tax.
Q: When did Arizona switch to a flat tax?
A: The transition began in 2022 and was fully in place by 2023.
Q: Does the flat tax apply to nonresidents?
A: Yes, but only on Arizona-sourced income.
Harry is the creator of ArizonaPaycheckCalculator.com, a trusted resource for accurate and easy-to-use payroll and tax calculators. With a focus on clarity and precision, Harry helps Arizona residents understand their take-home pay, deductions, and withholdings. Dedicated to making complex calculations simple, he combines financial knowledge with user-friendly tools to save users time and confusion.