How to Deduct Payroll Taxes in Arizona
Arizona is one of the many states that charge a state income tax to employees. Arizona employers are required to withhold the tax from employees' wages. The state has a distinctive withholding procedure. Unlike many states that use a withholding tax table to figure state income tax, Arizona uses percentages based on taxable wages. The employee states her withholding conditions on the state withholding form, and the employer uses this form and the respective percentage to figure the withholding.
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Instructions
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Obtain the employee's withholding percentage from his Arizona withholding form --- an A-4. For example, for wages paid after Dec. 31, 2009, through June 30, 2010, employees who earn more than $15,000 annually are subject to a tax rate of 20.3 to 39.50 percent of taxable wages. For wages less than $15,000 annually, the tax rate ranges from 10.7 to 39.50 percent. After June 30, employees complete a new form, electing a new amount. Thereafter, the minimum percentage for yearly compensation less than $15,000 is 1.3 percent. For wages $15,000 or more, the minimum is 1.8 percent.
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Multiply the employee's tax percentage by her gross taxable wages to arrive at the state income tax withholding amount. Gross taxable wages are the employee's pay before deductions occur. If the employee has a pretax voluntary deduction that meets the Internal Revenue Service's Section 125 requirements, such as a traditional 401k plan, subtract the voluntary benefit from gross income to arrive at gross taxable wages.
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Do not withhold Arizona income tax if the employee elects "exempt" on his A-4 form. The employee is exempt if he owed no Arizona income tax in the last year and expects to owe no Arizona income tax in the present year.
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Tips & Warnings
Arizona employees are subject to federal withholding. Figure Social Security tax at 6.2 percent of gross earnings, up to $106,800 for the year, and Medicare tax at 1.45 percent of all gross wages. Figure federal income tax withholding using the employee's W-4 form and IRS Circular E (Employer's Tax Guide).
If Arizona income tax withheld for the prior four quarters is not more than $1,500, make payments to the Arizona Department of Labor simultaneously with your quarterly returns. If the withholding exceeds this amount, make payments at the same time your IRS federal tax deposits are due.
References
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