2023 Brings Changes to Arizona Withholding Forms

by Marc Lamber

Arizona employees are getting to keep a bit more in their pockets as Arizona’s individual tax rate has been lowered to a flat 2.5%.

Withholding forms are changing as well. Prior to January 1, 2023, individual tax rates in Arizona were 2.55% and 2.98%, and employees had five withholding choices ranging from .8% to 5.1% of gross earrings.

With the implementation of the new 2.5% flat tax rate for individuals this year, a new A-4 form should have been provided to employees by January 31, 2023. The form has seven withholding election rate boxes ranging from .5% to 3.5%. It will also offer a zero withholding option, along with a box for additional Arizona withholding, according to the Arizona Department of Revenue. If an employee fails to fill out the form, the employer will elect the 2% withholding option for that employee.

There is also another significant tax provision that is worth noting for those who are self-employed, acting as independent contractors or operating a side business who accept payments through third-party network transaction apps like Paypal, Cashapp, Venmo, and freelancing platforms like UpWork that manage client payments. For the 2023 tax year, these apps are now required to issue 1099-K forms if the gross payments received for goods or services exceed a total of $600 during the year regardless of the number of transactions.

It looked as though this rule would apply for the 2022 tax year, however on December 23, 2022 the IRS issued new guidance pausing implementation of the rule. For the 2022 tax year, third-party network transaction apps will be required to issue 1099-K forms for business transactions exceeding $20,000 or more than 200 transactions for the year.

Those who exclusively use payment apps for personal transactions do not need to report transactions like sending someone birthday cash or splitting the bill for dinner on taxes. However, those who use the same cash app for business and personal transactions could end up having to prove that a personal payment was not earned income. If a 1099-K form is received reporting personal income, individuals are encouraged to work it out with the cash app.

Marc Lamber is a Martindale Hubbell AV Preeminent-rated trial attorney. A director at Fennemore Craig, Lamber has been featured in national and local media, including the Arizona RepublicUSA Today, ABC News, The Wall Street JournalForbes, the ABA Journal and many others. 

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