Why is this change being made?
Senate Bill 1185 (Laws 2009, 1st Reg. Session, Chapter 2) amended the amounts required to be withheld for Arizona income tax withholding purposes. Through June 30, 2010, the amount required to be withheld is a percentage of federal withholding. For amounts withheld on or after July 1, 2010, the amount required to be withheld will be a percentage of gross taxable wages in a table prescribed by the Department of Revenue. This change will ensure that changes to Federal withholding do not impact State withholding.
Are all employees required to turn in a new Arizona A-4 form?
Every employee is required to fill out a new Arizona A-4 form effective for wages paid after June 30, 2010 unless they qualify to complete:
A-4V “Voluntary Withholding Request for Arizona Resident Employed Outside Arizona”
WEC “Withholding Exemption Certificate” for Arizona Nonresidents
WECI “Withholding Exemption Certificate, Native Americans with Instructions”
WECM “Withholding Exemption Certificate for Military Spouses”
What is “gross taxable wages”?
“Gross taxable wages” is the amount that meets the federal definition of "wages" contained in IRC § 3401 and that will be included in box 1 of the employee's federal Form W-2 at the end of the calendar year. To determine gross taxable wages, take:
Gross Wages (taken from the PAY section of your Pay Stub)
+ Value of Auto Usage (if any)
+ Value of Imputed Income (if any)
+ Taxable Travel Reimbursements (if any)
+ Taxable Per Diem (if any)
Any pre-tax deductions (shown with asterisk *)
that appear on your paystub
- Deferred Compensation Contributions
- Tax Sheltered Annuity Contributions
- HSA Contributions (employee only)
- Retirement Contributions
- Health/Dental Insurance Premiums
- Supplemental Life Premiums
- Dependent Care Deductions
- Medical Reimbursement Deductions
- Vision Care Premiums
- Bus Card/Platinum Pass Deductions
Has the gross taxable wage calculation changed?
No. The eligible pre-tax items that can be deducted from gross wages for calculating gross taxable wages have not changed.
What about volunteers who only get reimbursed non-taxable travel?
Even volunteers should complete an A-4 in the event they are paid taxable income (such as taxable travel reimbursements) in the future. However, because non-taxable travel reimbursements aren’t included in gross taxable wages, no withholding is taken for these payments.
Do employees really need to include their Social Security Number on the A-4 form?
Yes. The requirements of an official Department of Revenue form apply to all employers and employees statewide.
If an employee files exempt from Federal withholding, are they automatically exempt from State withholding?
No. In the past, since State income tax withholding was calculated as a percentage of Federal income tax withholding, filing exempt from federal taxes automatically prevented a deduction for State income tax withholding. Starting July 1st, State income tax withholding will be calculated independently of federal elections. To be exempt from State income tax withholding, an employee would need qualify and file as exempt on the State A-4 form.
How does an employee file exempt from State withholding?
To qualify as exempt, employees must meet the following criteria as prescribed by the Department of Revenue:
- Employee had NO Arizona tax liability for the prior taxable year, AND
- Employee expects to have NO Arizona tax liability for the current taxable year
If both criteria apply and the employee wishes to file exempt, box 3 should be selected, and the A-4 form submitted to the Agency Payroll or Personnel Office
Can an employee file exempt with an additional amount per paycheck?
An employee qualifying and electing to be exempt does not have the option to designate an additional withholding amount. Employees changing their Arizona withholding election to exempt should have their PR13 record reviewed to ensure any additional amounts are removed.
How does a person know if the A-4 form is applicable now or applied to wages paid after June 30, 2010?
The A-4 form has a NOTE at the top showing the effective period.
If an employee turns in more than one A-4 form, which one should be used?
The most recently submitted, properly completed, A-4 form should be used.
How do employees know which percentage withholding to choose?
Agency Payroll and Personnel Offices cannot provide tax advice. To assist employees in electing a withholding percentage, examples are provided on the instructions of the new A-4 form as well as a calculation worksheet. Each employee must take into consideration their particular situation to determine their elections. If employees have questions, they should speak with a tax advisor.
Will State income taxes be withheld in December?
On which payday will the new tax withholding rates appear?
July 2, 2010.
Where can more information be found?
Additional forms, instructions and materials are available on the AZ Department of Revenue website at http://www.azdor.gov.
Can an employee file State withholding preferences electronically?
Electronic filing of an A-4 form is not permissible at this time.
Does the new A-4 form received by an employee need to be an original, paper document?
Yes. A fax, scan, or copy of a signed A-4 form is not acceptable. Original A-4 forms are required to be on file by the Agency Payroll or Personnel Office and available for audit.
Is there a deadline for submitting an employee’s new Arizona A-4 form to their Agency?
All new A-4 forms should be completed by the employee and turned into their Agency Payroll or Personnel Office no later than June 15, 2010. Agencies may set an earlier deadline for their employees.
What should Agencies do with the new A-4 forms being turned in now?
Agencies should hold these forms. Entering these elections into HRIS too soon will impact payments made that should be calculated using the current A-4 (Jan 1-June 30, 2010) elections on file.
What is the time frame for entering the elections on the new A-4 forms into HRIS?
The ultimate deadline to get all new A-4’s into HRIS is June 29, 2010 at 2:00 PM. Agencies not utilizing the Excel-based upload template noted in the following paragraph can begin entering the new A-4 elections in HRIS on June 16th (after the June 15th payroll compute). However, any handwrites paid up to and including June 30 must use the current A-4 election. Therefore, if agencies enter a new A-4 election on June 18th and then prepare a handwrite for that employee on the 20th, they should adjust the PR13.1 for State Withholding back to the A-4 election appropriate for the day the wages are paid.
Can A-4 elections be uploaded directly into HRIS?
Yes. Agencies will need to collect and retain the paper A-4 form received by each employee. Agencies can then immediately key the A-4 elections into an Excel-based upload template available on the GAO Website at: http://www.gao.az.gov/publications/payrollreport/. This template will need to be sent to Central.Payroll@azdoa.gov by 5:00 PM on Wednesday, June 23, 2010 to be uploaded into HRIS by GAO Central Payroll. Agencies receiving any new A-4 forms from employees after this date will need to manually enter the forms into HRIS on the PR13.1 no later than Tuesday, June 29, 2010 at 2:00PM.
How do I know what the HRIS formula conversion is for the new State tax rates?
OLD RATES NEW RATES
% of federal withholding % of gross taxable wages
HRIS Code Jan-Jun 2010 starting July 2010
8 0% 0% * See Note 1
7 10.7% 1.3% * See Note 2
6 20.3% 1.8%
5 24.5% 2.7%
4 26.7% 3.6%
3 33.1% 4.2%
2 39.5% 5.1%
Along with a percentage election, employees can now specify an additional State withholding amount to be withheld per paycheck.
* Note 1: Only available if employee had no tax liability last year and does not expect to have any tax liability this year.
* Note 2: Option not available if annual compensation is $15,000 or more.
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