If you’re an Arizonan getting ready to file your state or federal taxes, but need a little help knowing what taxes, exemptions, credits, and deductions to look out for, take a look at our Arizona state tax guide. We’ll walk you through everything you need to know to get the refunds you deserve and make doing your taxes easy.
The first thing that you should be aware of is that there’s a difference between state and federal taxes. Filing one does not mean that you’re all done with the other!
Federal taxes are taxes collected by the federal government in Washington DC. State taxes, on the other hand, are those collected by your individual state. The Federal government guarantees the rights of states to tax their citizens, and nearly every state does. These taxes go toward vital projects that improve the quality of life for residents, like schools, roads, and emergency services – so don’t feel too bad about having to file twice.
Of course, you’ll want to be sure that you’re filing both your state and federal taxes correctly. Let’s start with an overview of Arizona’s common taxes.
Overall, Arizona ranks quite low on many taxes. While it may not have zero income tax, like Texas, or no sales tax, like Delaware, it’s rates in every area combined are so low that the benefits are actually similar or even better than in those states. If you’re frustrated about having to pay taxes, Arizona has a lot to love, as you’ll see as we break down the details in the sections below.
While the state’s income tax brackets increase according to income, the highest rate is still quite low, at a lax 4.24%. That said, come tax season, you’ll still want to get the biggest return you can – there’s no benefit to accidentally overpaying your taxes because you missed out on a valuable deduction or possible tax credit!
Read through this guide to see where you might benefit from Arizona’s tax code, and if you’re uncertain about any aspect of filing, or nervous about handling federal and state income taxes at the same time, our Community Tax experts are always here to help.
The first thing you’re going to want to consider when getting ready to file your Arizona state taxes is what tax bracket you fall into. Tax brackets are the way that states decide how much a person earning a certain level of income ought to pay in taxes.
Like most states, as well as the federal government, Arizona’s taxation increases commensurate with income. So, if you’re earning $100,000 a year, you’re going to pay a larger percentage of that income than someone making $30,000.
These are the tax brackets for people filing as single or married filing separately in Arizona.
However, if you’re filing jointly as a married couple or head of household, these are the brackets.
If you’re married, don’t accidentally file separately – as you can see, the rates for those filing jointly are much lower than they are at the same level of income for single filers. Take advantage of every tax benefit you can to make sure that your Arizona state tax refund is what you deserve.
Tax brackets in Arizona apply to personal income tax. Personal income tax is a tax that is paid out of the money you earn from work. Every month when you see a bit of your paycheck has been taken out, that’s income tax – along with other things like Social Security or any retirement account you might have set up through your employer.
· The maximum income tax rate in Arizona is 4.24%, which is very low compared to many other states. (Neighboring California’s top rate, for instance, is 13.3%!)
· Overall, Arizonans’ tax burden accounts for 8.8% of their income: 36th in the nation (as of 2012).
· Remember, Arizona’s tax brackets are different based on your filing status, so be sure you’re aware of the benefits and deductions that apply to your specific filing status.
· Arizona taxes AGI – adjusted gross income – which includes not only the money you make from your job, but also any investments and assets that you can claim to have earned throughout the year.
Not all income is earned through working – some people make money through investing in the stock market, buying bonds, or buying and selling property. These are considered capital gains.
Federally, the government levies a capital gains tax commensurate with the amount that someone earns from their investments. The rates can be as low as 0% for gains under $40,000, but as high as 23% for those making in the hundreds of thousands on their investments.
In addition to the federal government’s capital gains tax, some states levy their own capital gains tax.
· Arizona does not consider capital gains separately from regular income.
That means that when you file, any money you’ve made through investments is counted alongside income that you made through your job.
It also means that the rates that you’re paying on your capital gains are the same as they would be for traditionally earned income at that level. When filing your Arizona state taxes, add the amount that you earned via capital gains to the amount that you earned from your traditional income to see what bracket you fall into.
This means that even if you’re only making $32,000 from your job, if you’re bringing in an additional $25,000 through investments (maybe your grandma left you a massive investment account), you’ll be taxed 3.36%, the bracket for earners making $55,000, rather than 2.88%, the bracket for those making $32,000.
Make sure you include any capital gains you’ve earned throughout the year in your state income tax return.
A sales tax is a tax added to the sale of goods and services within a state. Ever notice that when you buy something the price at the register is higher than the price listed on the shelf? That’s sales tax.
Arizona technically does not have a sales tax, but instead, a Transaction Privilege Tax. As the Arizona Department of Revenue describes it, “the Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state.”
In effect, however, this is a sales tax, as most of the time the burden is passed on to the customer when they purchase goods or services from that business. The Arizona TPT rate is 5.6% + municipal rates. The state government of Arizona allows governing authorities in counties and cities to add an additional transaction privilege tax to the state-mandated 5.6%, however that does vary depending on the kind of good or service in question.
Certain items are taxed at lower rates, however, and other items are taxed at higher rates. Depending on what it is being sold, the transaction privilege tax can range from as low as 0% on commercial leases to as high as 7.6% on restaurants and bars – all in La Paz county. Rates for most items tend to hover around the 6% range, however, which considered nationwide is fairly middle-of-the-road as far as sales taxes go.
In most states, in addition to imposing a sales tax on most goods and services within the state, the government also imposes excise taxes, some of which are referred to as “sin taxes.”
Excise taxes are levied on goods and services that the state deems might be harmful if used to excess. Some common sin taxed items include alcohol, tobacco products, sex work like nude bars, and marijuana in states where it’s legal.
One interesting fact is that Arizona actually refers to their excise taxes as luxury taxes.
Arizona taxes alcohol at varying rates depending on the kind of alcohol in question as well as the ABV (alcohol by volume) of that alcohol. According to the Arizona Department of Revenue, these are the rates of taxation imposed on alcohol:
- per gallon $3.00
- more than 24% alcohol (per gallon) $4.00
- less than 24% alcohol (per gallon) $0.84
Malt Liquor (Beer)
- per gallon $0.16
For those of you who are a little confused, “vinous liquor” means wine. Wines above 24% abv are taxed at $4 a gallon, but those under that threshold are taxed at only $0.84 a gallon.
Due no doubt to its adverse health effects, all states impose some form of tobacco tax or another to try to deter the amount that citizens smoke. According to the Arizona Department of Revenue, the following scheme determines the way that tobacco products are taxed in Arizona.
The current combined tax rate on cigarettes is $0.10 per cigarette ($2.00 per pack of 20 cigarettes and $2.50 per pack of 25 cigarettes).
The current combined tax rates for other tobacco products (“OTP”) are as follows:
- Small cigars (weighing not more than three pounds per 1,000 cigars) - $0.441 per 20 cigars.
- Cigars retailing at more than $0.05 each - $0.218 per cigar.
- Cigars retailing at not more than $0.05 each - $0.218 per 3.
- Smoking tobacco, snuff, fine cut chewing, etc. - $0.223 per ounce.
- Cavendish, plug or twist - $0.055 per ounce.
Note: These rates are much lower on Native American reservations.
· Nonprofit medical marijuana dispensaries in Arizona are exempt from corporate income tax.
· While medical marijuana is legal in the state, recreational sales are currently illegal.
· A proposed bill, however, would legalize marijuana and impose a 16% sales tax on marijuana sales in Arizona.
In an effort to improve their carbon footprint, promote public transit, and bring in revenue to put toward improvements in infrastructure, many states impose a tax on gas.
· In Arizona, the gas tax is $0.18 per gallon.
According to the Arizona Department of Insurance, authorized insurance companies pay an insurance tax rate of 1.85% -- a recent decrease.
Property taxes are levied as a percentage of the assessed value of your home or other property. In Arizona, there is not a uniform rate of taxation, as each county decides the rate at which property is taxed.
That said, there is actually a relatively small range in Arizona, and property tax rates are quite low. Here are some quick facts about how Arizona’s property tax rates relate to income and home value.
- The median property tax in Arizona is $1,356
- That amounts to 2.28% of the median family income of $59,367, the 30th highest in the country in relation to income.
- It also amounts to an average of 0.72% of property value, which is the 35th in the country.
Property values are assessed at their fair market value, basically a fair price for which they could be sold if put up on the market. Every few years, the government will send assessors through towns and cities to assess the values of properties.
Because the market for housing, land, or commercial space is always in flux, the value at which your property is assessed is liable to change: as prices go up, so do taxes; and as they go down, taxes do too.
Be sure that you’re aware of fluctuations in the real estate market in your area so that you know what your property taxes are likely to be, as they may have changed since the last time you filed.
An inheritance or estate tax is a tax that is imposed on the estate left after someone passes away. If you or a loved one dies and intends to leave a sum of money, property, or investments to loved ones you leave behind, you should know that it may be subject to the estate tax at the federal level.
The federal government tax code subjects estates in excess of, as of 2019, $11.4 million. This will, of course, not apply to the vast majority of people – but if it does apply to you, it’s good to expect it.
The state of Arizona, on the other hand, does not impose its own estate tax on its citizens as of January 2005. So, if you are setting up a will, rest assured that the state will not tax any of the assets you intend to leave to your next of kin.
States offer a few ways that taxpayers can get some relief on their taxes for good deeds and contributions, or in cases where they might just need a little extra help. In general, these are tax credits, deductions, and exemptions.
Tax credits are dollar-for-dollar reductions in the amount of money that you owe the state. Deductions reduce the amount of income that is subject to taxation. And exemptions exempt portions of your income from taxation.
In effect, all of these methods reduce the amount that you owe the government when it comes time to file, and in many cases, it means you will get a larger refund.
First, Arizona offers many different categories of tax credit.
· Contributions to qualifying charitable organizations and fees for certifying these organizations
· Contributions to qualifying foster organizations and fees for certifying these organizations
· Donations made to public schools
· Contributions to certified school tuition organizations and fees for certifying these organizations
· Health insurance premium tax credits
· Renewable energy production tax credits for individuals and businesses that invest in renewables
· University research and development tax credits for individuals and businesses that make payments to a qualifying university for research
· Tax credits for investing in qualifying small businesses
Like many states that levy an income tax, Arizona offers a standard deduction scheme. The amount you’re allowed to deduct depends on your filing status, basically whether you’re married, the head of a household, or filing jointly.
Here’s a full table of the standard deductions for each filing status from the Arizona Department of Revenue:
In addition to the standard deductions, Arizona offers many deductions and exemptions for disabled folks, seniors, and others.
· Folks who are blind as well as their spouses
· Taxpayers 65 years old or older and their spouses
· Dependents above 65 years of age for whom the taxpayer paid nursing home bills or assisted living bills over $800
· Parents or ancestors of parents who are 65 years old and for whom the taxpayer paid more than one half of the care and support that year, and that parents or ancestor of the parent required regular assistance with daily living activities
With so many chances for deductions, exemptions, and tax credits, be sure that you’re keeping tabs on all the possibilities for making back a larger refund on your tax return this year. If you’re having trouble sorting out whether a certain condition or set of conditions applies to you, feel free to reach out to one of our tax preparation experts here at Community Tax.
Filing your taxes can be a hassle, and can be really stressful if you’re hoping for a big return, or worried about catching everything to avoid an audit. There’s plenty to remember, too, including personal income tax, property tax, and whatever deductions or tax credits you may be applying for.
When you’re preparing your taxes, be sure that you have these crucial items on hand
- Your previous year’s tax returns.
- Any w-2’s from your employers.
- Statements of earnings from any investments you’ve made.
- Your social security number.
- Proof needed for any exemptions, credits, or deductions you’re applying for.
Remember, if you need a little extra help, Community Tax’s team of tax return experts are always available to make your life easier. Reach out to one of our certified tax experts today if you have any questions or concerns about filing your returns correctly.
When it comes time to actually pay your Arizona state taxes, you have a few different options. You can:
- 1. Pay online with a bank account
- 2. Pay with your credit card, however, there is a service fee: $3.50 for Visa, %2.5 for other cards.
- 3. Check, money order, or cashier’s check
- 4. You can set up a payment plan: call 602-542-5551 to arrange it.
Now that you’ve gotten through the difficult tax information, reward yourself with some interesting tax facts about Arizona tax laws!
- Many food items are tax exempt.
- This even includes ice cubes.
- It does not, however, include pet food.
- Arizona is the only state in the Union to have a Transaction Privilege Tax
State taxes are not the end of the story; you’re also responsible for your federal taxes every year. Tax brackets and rules are different at the federal level than at the state level, so if you’re having any trouble navigating the complicated waters of taxation, reach out to a Community Tax representative!
This information is accurate as of 2019. Special circumstances which can affect your tax return may apply.
Sources: Arizona Department of Revenue Transaction Privilege and Other Tax Rate Tables, Form 140 - X & Y Tables, Arizona Nonprofit Medical Marijuana Dispensary Annual Information Return, Liquor Luxury Tax, Tobacco Luxury FAQs, Tax Exempt Food, ADOR Notice: 2018 Standard Deductions, Exemption Amounts and Tax Brackets, AZTaxes.gov FAQs, Arizona Department of Insurance Tax News, IRS Estate Tax, Tax-Rates.org Arizona Property Tax 2019, Marijuana Policy Project Arizona, Tax Foundation How High Are Cigarette Taxes in Your State?