Arizona Unemployment Tax Explained: What Employers Must Know (2025 Guide)

Employers in Arizona are required to pay unemployment insurance (UI) tax, a state payroll tax that funds unemployment benefits for workers who lose their jobs. While employees don’t contribute, businesses must calculate taxable wages, apply the correct rate, and file quarterly reports with the Arizona Department of Economic Security (DES).

For small business owners, understanding how this tax works is essential. In 2025, the taxable wage base remains $8,000 per employee, and new employers typically pay a 2.0% rate until they build an experience history. This guide explains everything employers need to know about Arizona’s unemployment tax—from how it’s calculated to filing responsibilities, penalties, and compliance checklists—so you can stay organized and avoid costly mistakes.

Why unemployment tax matters for Arizona employers

If you employ workers in Arizona, you’re required to pay into the state’s Unemployment Insurance (UI) program. This employer-funded tax helps cover unemployment benefits for eligible workers who lose their jobs.

Understanding how Arizona’s unemployment tax works—what the wage base is, what rates apply, and when reports are due—can save you from costly mistakes and penalties. Here’s what every employer needs to know in 2025.

What is Arizona unemployment insurance (UI) tax?

Arizona unemployment tax is a state payroll tax paid entirely by employers. Employees do not contribute.

• Purpose: Funds unemployment benefits for eligible workers.
• Who pays: All Arizona employers with qualifying payroll.
• Administered by: Arizona Department of Economic Security (DES).

2025 Arizona unemployment tax rates and wage base

• Taxable wage base: Employers pay UI tax only on the first $8,000 of each employee’s annual wages.
• New employer rate: 2.0% for at least two years.
• Experienced employer rates: Ranges from about 0.04% up to 9.72%, depending on your company’s “experience rating.”
• Experience rating: Determined by your history of paying into the system vs. unemployment claims charged to your account.

Example:

• You have one employee earning $40,000 in 2025.
• Only the first $8,000 is taxable.
• At 2% new employer rate → $160 annual UI tax.

How employers calculate Arizona UI tax

The formula is straightforward:

Taxable wages × assigned tax rate = UI tax owed

• Payroll of $50,000 (with 5 employees) → $8,000 taxable per employee × 5 = $40,000 taxable wages.
• If your rate is 2% → $40,000 × 0.02 = $800 UI tax.

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Employer responsibilities in Arizona

1. Register with DES

• File an employer registration (Form UC-001) online via the DES Tax and Wage System (TWS).
• You’ll receive an employer account number and your assigned UI tax rate notice (Form UC-603).

2. File quarterly reports

• Employers must submit Form UC-018 (Quarterly Wage Report).
• Deadlines: April 30, July 31, October 31, and January 31 (following year).
• File electronically using the DES TWS system.

3. Pay contributions

• Pay your UI tax with each quarterly filing.
• Contributions are due on the same day as the report.

4. Keep records

• Maintain wage, hours, and tax records for at least four years.
• Records should include employee details, gross pay, and UI contributions.

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Penalties for noncompliance

• Late reports: Minimum $35 penalty, up to $200 per report.
• Unpaid contributions: Subject to 1% monthly interest.
• Failure to comply: May trigger audits or legal action.

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Arizona employer compliance checklist

✅ Register with DES and obtain an account number.
✅ Track wages up to $8,000 per employee annually.
✅ Apply your new or experience-rated UI tax rate.
✅ File Form UC-018 by quarterly deadlines.
✅ Pay contributions with your filing.
✅ Keep payroll and tax records for at least 4 years.

FAQs: Arizona unemployment tax compliance

What is the Arizona unemployment tax wage base in 2025?
The first $8,000 of each employee’s annual wages.

What tax rate applies to new employers in Arizona?
Most new employers start at a flat 2.0% rate for at least two years.

When are UI tax reports due?
Quarterly: April 30, July 31, October 31, and January 31 (for Q4).

How are UI tax rates calculated for experienced employers?
Rates depend on your company’s “reserve ratio”—contributions vs. benefits charged to your account.

Do contractors or 1099 workers count?
No. Independent contractors are not subject to UI tax because they are not employees.