Running a small business in Arizona means more than managing employees and paying wages—you’re also responsible for payroll taxes. Employers must withhold Arizona state income tax, contribute to unemployment insurance, and file reports on time with state and federal agencies.
Why Payroll Taxes Matter for Arizona Small Businesses
If you run a small business in Arizona, paying employees means more than writing checks. You’re also responsible for withholding state and federal taxes, paying unemployment insurance, and filing reports with the Arizona Department of Revenue (ADOR) and Department of Economic Security (DES).
Understanding each step helps you avoid penalties, stay compliant, and build trust with your employees. This guide walks you through payroll taxes in Arizona—from registering as an employer to filing quarterly reports—so you know exactly what to do.
Step 1: Register as an Employer in Arizona
Before running payroll, you need to set up properly:
- Apply for an Employer Identification Number (EIN) with the IRS.
- Register with the Arizona Department of Revenue (ADOR) for state income tax withholding.
- Register with the Arizona Department of Economic Security (DES) for unemployment insurance tax.
New employer note: Arizona sets a default Unemployment Insurance (UI) tax rate of 2% on the first $8,000 of each employee’s wages.
Step 2: Withhold Arizona State Income Tax
Every new hire must complete Arizona Form A-4 (Employee’s Withholding Election).
- If an employee doesn’t return the form within 5 days, you must withhold at the default rate of 2.0%.
- Employees can choose a rate from 0.5% to 3.5% depending on their situation.
How often do you remit withholding?
The frequency depends on how much tax you withhold:
- Annual: Small employers with minimal withholding.
- Quarterly: Standard option for many small businesses.
- Monthly or Semiweekly: Required for larger payrolls.
| Withholding Volume | Filing Frequency |
|---|---|
| Under $200/year | Annual |
| $200–1,500/year | Quarterly |
| $1,500–20,000/year | Monthly |
| Over $20,000/year | Semiweekly |
Step 3: Pay Arizona Unemployment Insurance (UI) Tax
UI tax is paid only by employers, not employees.
- Taxable wage base: first $8,000 per employee per year.
- Rates:
- 2.0% for new employers.
- 0.04%–9.72% for established employers (based on experience rating).
💡 Example: If you pay an employee $40,000 in a year, you only owe UI tax on the first $8,000 of their wages.
For small businesses that also own property, it’s smart to budget for additional costs like insurance. You can estimate these expenses with a land loan insurance cost calculator.
Step 4: File and Pay Payroll Taxes
- Federal payroll taxes: Deposit through the IRS EFTPS system.
- Arizona withholding taxes: File through AZTaxes.gov.
- UI taxes: File quarterly via the DES portal or mail Form UC-018.
| Tax Type | Filing Portal | Due Dates |
|---|---|---|
| Federal (941, 940) | EFTPS/IRS | Quarterly & Annual |
| Arizona Withholding | AZTaxes.gov | Monthly, Quarterly, Annual |
| Arizona UI | DES portal | April 30, July 31, Oct 31, Jan 31 |
If payroll taxes cut into your operating cash flow, explore tools like a business loan repayment calculator to plan around fixed loan obligations alongside tax deadlines.
Step 5: Stay on Top of Deadlines
Arizona small business payroll taxes follow a strict calendar:
- Quarterly UI reports due: April 30, July 31, October 31, January 31.
- Withholding reports depend on your assigned frequency (monthly, quarterly, or annual).
- Federal filings: Form 941 (quarterly), Form 940 (annual FUTA).
Penalties: Late or missed payments can result in interest and fines of up to 25% of the unpaid tax.
Step 6: Keep Records Organized
The state of Arizona requires businesses to maintain payroll records for at least four years, including:
- Employee names, addresses, and Social Security numbers.
- Wages, tips, and hours worked.
- Taxes withheld and deposited.
- Copies of Form A-4 and W-2s issued.
To protect cash flow, you can also model different scenarios—such as early loan payoff—using a land loan early payoff calculator.
Quick Comparison: Withholding vs. UI Tax
| Tax Type | Who Pays | Rate | Wage Base | Frequency |
|---|---|---|---|---|
| Arizona Withholding | Employee (withheld by employer) | 0.5%–3.5% (default 2%) | All wages | Monthly, Quarterly, Annual |
| UI Tax | Employer only | 2% new, 0.04–9.72% established | First $8,000 per employee | Quarterly |
FAQs: Arizona Payroll Taxes
What happens if my employee doesn’t submit Form A-4?
You must withhold at the default 2.0% rate.
Do small businesses in Arizona have to pay unemployment tax?
Yes, all employers contribute UI tax on the first $8,000 of each employee’s wages.
How do I pay Arizona payroll taxes online?
Withholding is paid at AZTaxes.gov, and UI is paid through the DES portal.
Are payroll records required in Arizona?
Yes, employers must keep records for at least four years.
What penalties apply for late payroll tax filings?
Penalties can reach 25% of unpaid taxes, plus interest.
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.