Arizona's 2.5% Flat Tax, One of the Lowest in the Country
Arizona moved to a flat 2.5% income tax in 2023, among the lowest state income tax rates anywhere that taxes income at all. There are no brackets to manage, every dollar of taxable income is taxed at 2.5%. Arizona also conforms to the federal standard deduction, so for 2026 you subtract $16,100 (single) or $32,200 (married) before applying the rate. A single filer earning $85,000 has $68,900 of Arizona taxable income and owes about $1,723, an effective state rate near 2%.
Arizona Uses the Federal Standard Deduction
Unlike most states, Arizona does not set its own standard deduction, it conforms to the federal amount, which for 2026 is $16,100 single and $32,200 married. That means the large federal standard deduction flows straight through to your state return, and there is no separate state figure to track. Combined with the 2.5% rate, the conformity keeps Arizona's state tax remarkably small for typical salaries.
No Local Income Tax
No Arizona city or county levies a local income tax, so the flat 2.5% is the entire sub-federal picture on your wages. There is no Ohio-style municipal layer and no Pennsylvania-style local Earned Income Tax. What you calculate at the state level is exactly what comes out of your paycheck for state purposes, which makes Arizona one of the easiest states to estimate take-home pay in.
Why Arizona Draws High Earners and Retirees
Because the rate is flat and low, a high earner in Arizona pays the same 2.5% as everyone else, there is no rising top rate to climb into. Retirement income is also taxed at just 2.5% (Social Security benefits are fully exempt), which combined with the federal-conformed deduction makes Arizona one of the cheapest income-tax states for both large salaries and retirement drawdowns. It is a frequent landing spot for relocations out of California's 13.3% top rate.
Planning in Arizona
With a 2.5% flat rate, the state side of your tax is so small that federal strategy dominates. A traditional 401(k) dollar saves 2.5% in Arizona tax on top of your federal bracket, the federal portion is where the real benefit lies. There is no bracket management to do, so planning in Arizona is mostly about maximizing federal pre-tax contributions. Use the calculator above to see how each dollar splits between federal and state.
How Arizona Got to 2.5%, the Lowest Flat Rate
Arizona's flat tax is recent and aggressive. The state ran graduated brackets topping out around 4.5% as recently as 2021; a 2021 law set a glide path to a flat rate, and Arizona then accelerated it, landing on a single 2.5% rate for 2023 and after, the lowest flat income tax of any state that taxes wages. There were no further bracket changes to track for 2026; the story is simply that every Arizona earner now pays 2.5% on taxable income. That speed, from a multi-bracket system to the country's lowest flat rate in about two years, is itself the reason Arizona shows up so often in relocation comparisons.
Arizona and Retirement Income
Arizona exempts Social Security benefits entirely. For other retirement income it offers a targeted subtraction: up to $2,500 of benefits from federal, Arizona state and local government, and military pensions can be subtracted from Arizona income (Arizona Department of Revenue). Private pensions and 401(k)/IRA withdrawals beyond that are taxed at the flat 2.5%, which is so low that the lack of a broad private-pension exclusion rarely stings. Between the Social Security exemption and the 2.5% rate, Arizona is one of the least expensive income-tax states for a retiree drawing down accounts, which is a large part of its appeal to people leaving California.
Setting Withholding and the TPT
Arizona withholding is unusual: Form A-4 lets you pick a withholding percentage of your gross taxable wages rather than allowances, and if you never file one your employer defaults you to 2.0%. Residents file Form 140 (or 140EZ) by April 15, e-filed through AZTaxes.gov. On the spending side, Arizona's sales tax is called the Transaction Privilege Tax (TPT): the state rate is 5.6%, and city and county add-ons push the combined rate to roughly 8% to 11% depending on where you shop, which is the main way low-flat-rate Arizona still collects revenue.
An Arizona Paycheck, Line by Line
Take a salary near the Arizona median household income, about $74,000. Arizona conforms to the federal standard deduction, so a single filer subtracts $16,100 and pays 2.5% on the remaining $57,900, about $1,448 in state income tax, an effective state rate near 2%. There is no local income tax and no state disability or paid-leave premium, so that figure plus federal income tax and FICA is the whole picture. It is one of the lightest state-tax loads in the country on a middle income, and the calculator above will show your exact number.
Social Security and Medicare (FICA) are federal, so they come out the same in Arizona as in every other state. The main Paycheck Calculator walks through the full federal side, including the Social Security wage base and the Additional Medicare surtax.