January 2023: Arizona’s Employees Have New Tax Withholding Options

17 Jan

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Update Applicable to:
All employers in the state of Arizona

What happened?
On November 1, 2022, the Arizona Department of Revenue (AZDOR) announced the new Arizona Employee Tax Withholding options and an updated version of Arizona’s Individual Income Withholding Form (Arizona Form A-4) reflecting the lower rates was also published.

Every Arizona employer is required to make this form available to its Arizona employees by January 31, 2023.

What are the details?

PLEASE BE AWARE: To ensure compliance with AZDOR requirements, on 12/30/22, the State will change ALL employee records to the default rate of 2.0%. 

  • On 12/30/22: the General Accounting Office (GAO) will update all employee records to the default rate of 2.0% (HRIS PR14 code 13).  Additional dollar amounts withheld will not be changed.
  • Beginning 12/31/22:  Employees will have the opportunity to change from the default 2.0% on their A-4, if they choose to, for the first payroll the updated rates are effective.  
  • 01/10/23 by 1 pm:  Deadline to make changes to be effective the first pay period the new withholding rates are effective if the employee does not want the default rate of 2.0%.
  • On 01/12/2023: the first payday with the new A-4 rates will be used for calculating AZ withholding taxes.
    • NOTE:  Employees have the option to update their A-4 at any time during the tax year but are encouraged to consult with their tax advisor related to these new updates from AZDOR to determine how they may be affected.  

Employees have two options to complete the new Arizona Form A-4 that is required by law for wages paid after January 1, 2023. State employees on the HRIS payroll system can submit an Arizona Form A-4 on paper to their agency payroll office or electronically via the Y.E.S. website.  Current employees who fail to make the required A-4 election will be set at the new default rate of 2.0% which may not be the appropriate option for their specific situation. 

TAX ELECTION OPTIONS

Employees have two options to complete the new Arizona Form A-4 that is required by law for wages paid after January 1, 2023.   State employees on the HRIS payroll system can submit an Arizona Form A-4 on paper or electronically via the Y.E.S. website.

PAPER A-4 – EMPLOYEES ELECTING EXEMPTION MUST BE FILED BY PAPER

Employees can submit a completed paper Arizona A-4 Form(link is external), due by January 6, 2023 (or sooner if their agency requires it), to their Agency Payroll or Personnel Office.  Agencies with more than 500 employees can use the A-4 Upload Worksheet with A-4 Upload Worksheet Instructions, and send it to the GAO by January 6, 2023, at 5 p.m. or agencies can enter A-4 elections directly into HRIS beginning December 31, 2022.  

ELECTRONIC A-4 (PREFERRED METHOD)

Employees can also submit a completed electronic Arizona A-4 Form online, beginning December 31, 2022, via the Y.E.S. website to be effective the first pay period the rates are effective.  The deadline to affect the January 12th payday is January 10th, 2 p.m.  

To access the A-4 form via Y.E.S., employees will need to complete the following steps:

  1. Login to the Y.E.S.
  2. Click on the “Pay” link on the left menu
  3. Click on “Tax Withholding” 
  4. Click on the “AZ State W/H Tax” link.

The electronic A-4 form will override any paper A-4 form that has been submitted to the agency.  

Any A-4 upload worksheets (due by January 6, 2023, at 5 p.m.) received by the GAO as well as all electronic submissions via the Y.E.S. website will be uploaded into HRIS on January 9, 2023, in preparation for the January 12, 2023 payroll.

EMPLOYEES WHO FAIL TO COMPLETE AN ARIZONA FORM A-4:

  • New hire employees not completing a required Arizona Form A-4 should be withheld at 2.0%.
  • Current employees who fail to make the required A-4 election will be set at the new default rate of 2.0%.  Please encourage employees to consult a tax advisor to make a selection that is appropriate for their particular situation.  

The HRIS Formulas are as follows:

HRIS FormulaNew Rates:
% of Gross Taxable Wages
Starting January 2023
Notes
80.0%See Note 1
150.5% 
91.0% 
141.5% 
132.0%New Default Rate
122.5% 
113.0% 
103.5% 
Note 1:  Only available if the employee had no tax liability last year and does not expect to have any tax liability in the current year.  Annual renewal is required.

For more information, please see the links below:

Arizona General Accounting Office Article

Arizona Department of Revenue Article

What do employers need to do?
Employers should review the links provided above and should ensure that individuals required to fill out the form have it completed by January 31, 2023.

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