Arizona state income tax rates for 2023 and who pays

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• Arizona transitioned from a progressive tax to a flat tax on personal income in 2023.
• Its rate is the lowest among states with a flat tax.
• Incorporated businesses pay a 4.9% tax rate.

After years of imposing a progressive tax on income, Arizona switched to a flat tax in 2023. Flat taxes make calculating state tax liability simpler, since all taxpayers pay the same rate, regardless of income level. Here's how state taxes work in Arizona.

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How does Arizona tax income?

Arizona implemented a flat income tax rate of 2.5% in January 2023.

The state most recently had a two-rate individual income tax system with rates of 2.55% and 2.98%, and a plan to phase-in a new flat tax over three years, beginning in 2024. But due to strong economic growth and a budget surplus, the Arizona Department of Revenue was instructed to fully implement the flat tax in 2023. 

Fewer than a dozen states impose a flat tax, opting instead to tax income progressively (or not at all). Among states with a flat tax, Arizona's is the lowest. 

In general, higher-income taxpayers stand to see the most tax savings from the new rate.

"The new 2.5% flat tax can be looked at differently depending on the income of the resident, but overall the implication falls with the middle to lower class residents feeling as though the rich 'are going to get richer,'" says Christian Maldonado, CEO and founder of accounting firm Finsult.

Who pays Arizona income taxes?

Full-year and part-year residents of Arizona whose adjusted gross income is more than the standard deduction for their filing status must file a tax return. The deadline to file is April 15 — the same as the federal deadline.

Here are the 2023 standard deduction amounts:

Arizona income tax rates

For tax year 2023, Arizonans at all income levels pay 2.5% of their taxable income. 

For tax year 2022, there were two tax rates — 2.55% and 2.98% — that applied to all personal income, down from four rates ranging from 2.59% to 4.5% in 2021.

Arizona corporate tax rates

Arizona has a relatively low corporate income tax rate of 4.9% in 2023, which remains unchanged from 2022. 

The state ranks in the top-20 for business tax climate, according to an analysis by the Tax Foundation, which evaluated each state's individual and corporate tax rates, property taxes, sales taxes, and unemployment insurance taxes.

"Other favorable business related taxes are no franchise or privilege tax," Maldonado says. "Essentially, unless you incorporate as a C-corp, your business is not subject to state tax on income."

Arizona state tax rates frequently asked questions

What is the Arizona state income tax rate for 2023?

Arizona has a flat tax rate of 2.5% for the 2023 tax year. All taxpayers, regardless of income level, pay the same rate.

What are the Arizona state tax brackets for 2023?

Arizona has no tax brackets for 2023, since all income is taxed at a single rate of 2.5%.

Is Arizona a tax-friendly state?

With the implementation of its flat tax in January 2023, Arizona now has the lowest personal income tax rate among nearly a dozen states with a flat income tax.

When are Arizona state taxes due?

Arizona follows the federal tax deadline, which is April 15, 2024.