![]() 1828 consolidates Arizona’s four individual income tax brackets and graduated rates into one flat tax rate by 2023. Under this new law, to the extent applicable, high-income earners would be subject to (i) the 3.5% tax surcharge, plus (ii) an additional 1% regular income tax, so that they are subject to the 4.5% cap. Given that the aggregate of the regular tax rate and the 3.5% tax surcharge is capped at 4.5%, the top income tax rate (not counting the 3.5% tax surcharge) for high-income earners effectively becomes 1%. 1827 enacts a 4.5% cap on the effective tax rate applicable to individuals who would otherwise be subject to the 3.5% tax surcharge. 1827 - Effective for tax years beginning January 1, 2021, S.B. 1828, enacting comprehensive Arizona individual income tax reform. On June 30, 2021, Arizona Governor Doug Ducey signed into law S.B. ![]() 1828 – 4.5% Individual Tax Rate Cap and Individual Income Flat Tax ![]() Citing an effort to restore Arizona’s competitiveness, legislation was enacted to make changes to Arizona’s income tax system. Consequently, to the extent applicable, high-income earners would be taxed at a total combined state tax rate of 8% on any income exceeding the thresholds.īecause owners of pass-through businesses, such as partnerships and S-corporations, pay income tax under the individual income tax code, rather than the corporate income tax code, this combined 8% state tax rate was deemed by many to discourage in-state investment and diminish Arizona’s economic growth. In addition, under Proposition 208, which the electorate passed in November 2020, a 3.5% state income tax surcharge (the “3.5% tax surcharge”) is levied on taxable income exceeding the thresholds of $250,000 for single filers or $500,000 for joint filers (hereinafter referred to collectively as “high-income earners”). The State of Arizona adopted several significant tax measures during the 2021 legislative session, including an individual income flat tax, a high-earner tax bypass, and a federal SALT cap workaround.Ĭurrently, Arizona has four individual income tax brackets for individuals ranging from 2.59% to 4.5%. ![]()
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