Updated: May 30, 2023
Arizona is a state stereotyped for cacti galore and long summers that sizzle deep into autumn. But locals know it has far more to offer than 115-degree summer heat and an abundance of swimming pools. The state has crisp winter mornings that cut through your winter coat and people from all walks of life, from hibernating snowbirds to budding college students. And its greatest claim to fame is how it got its nickname as The Grand Canyon State.
Did you know that payroll taxes are due quarterly? Luckily, we’re here to help speed up the process. Your small business may be your own world wonder, but don’t let payroll taxes take as long as it took for the Grand Canyon to form. Let’s face it, 6 million years might make your taxes a little overdue.
Federal payroll taxes
First things first, you gotta pay Uncle Sam his dues. We’ve divided federal payroll taxes into a 6-step overview of what you need to know. If you want to get into all the details, we invite you to check out our step-by-step guide.
- Gross Wages. Gross wages are what your employees have earned during the most recent pay period.
- For hourly employees: Multiply the number of hours worked in the most recent pay period by their pay rate. Don’t forget to calculate any overtime hours at a higher pay rate.
- For salaried employees: Divide your employees’ annual salary by the number of pay periods. Gross wages for salaried employees should stay constant throughout the year, unless, of course, you give them a raise.
- Add in commissions, bonuses, and tips as well. Even though they’re not paid consistently, they’re still part of gross wages.
- Pre-Tax Withholdings. Do your employees have 401(k), FSA, HSA, or any other benefits that are eligible for pre-tax deductions? If the answer is yes, you’ll need to subtract them from gross wages before you start taking out federal payroll taxes. These deductions will reduce your employees’ taxable income.
- Federal Income Tax. This is the biggest tax of them all, and it can range from 0% all the way up to 37%, depending on, you guessed it, gross wages after pre-tax withholdings. Detailed federal income tax information can be found through the IRS Publication 15-T.
- FICA Taxes. The Federal Insurance Contributions Act, which was first introduced all the way back in 1935, covers two taxes: Social Security and Medicare.
- Social Security: Withhold 6.2% of each employee’s taxable gross wages until they have earned $160,200 for the year 2023. Any wages above $160,200 are exempt from the Social Security Tax. As the employer, you must match this tax.
- Medicare: Withhold 1.45% of each employee’s taxable gross wages until they have earned $200,000 for the year. As the employer, you will need to match this tax as well.
- Additional Medicare Tax: Withhold an additional 0.9% for any wages above $200,000, making the effective Medicare Tax rate 2.35% for high wage earners. Only the employee is responsible for paying the Additional Medicare Tax, so you don’t need to match the 0.9%.
- FUTA Tax: Your employees get a pass here. Only employers are responsible for paying FUTA, which stands for the Federal Unemployment Tax Act. The FUTA tax rate is 6% of the first $7,000 of taxable income an employee earns annually, which means the FUTA tax you pay for each employee is capped at $420 per year. But (and this is a big but), note that you can claim a tax credit of up to 5.4% if you pay your state unemployment tax in full and on time each quarter. This means that when everything’s said and done, you’ll only have to pay 0.6% per employee, a tax savings of 90%.
- Post-Tax Deductions: For most of your employees, you will be done at #5, but some employees may be responsible for paying court-ordered wage garnishments or child support. They may also choose to make post-tax contributions to things like savings accounts or life insurance.
Arizona payroll taxes
Arizona income taxes are broken down into five brackets based on income with rates ranging from 2.59% to 4.50%. Employees who are married or the head of the household, the income tax brackets are doubled while the rates remain the same.
There are no local city payroll taxes.
Arizona state unemployment insurance (SUI)
On the first $8,000 each employee earns in 2023, Arizona employers have to pay unemployment insurance of between 0.07% to 18.78%. All new employers should use a flat rate of 2.0%. This is what you need to pay in full and on time each quarter in order to get a FUTA tax credit.
Coverage for employees and employers
Most Arizona employers need to have a workers’ compensation policy to protect employees from workplace injuries and illnesses. In our guide to Arizona workers’ comp, learn more about how it helps workers and what the requirements are for employers.
Additional Arizona payroll tax resources:
Time to write those paychecks!
As a small business owner, there’s always something more on your to-do list. Now, you can check “payroll taxes” off so you can focus on the next item on your list. After each employee’s net pay is calculated (taking deductions and withholdings into consideration) then you’re in the clear!
Just make sure you set aside the taxes you owe for FICA and FUTA taxes so you’re not scrambling come deadline season.
Federal tax filings are due quarterly by filing Form 941. You also have to file a Form 940 annually for your FUTA taxes. But for most employers, taxes must be paid on an ongoing basis via the EFTPS payment system. You can find detailed information about IRS tax due dates here.
These rates are based on local legislation and can change at any time. Always consult a tax professional if you are unsure about your obligations.
Other useful paycheck calculators
The calculator at the top of this page makes it simple to run payroll for employees in the state of Arizona (and figure out any necessary tax deductions that need to be accounted for). But from time to time, employers can run into scenarios where paychecks need a little more wrangling. For example, you may need to issue a final paycheck when an employee leaves. Or, if you reward employees with bonus pay — similar to regular wages — taxes must be withheld. So if you have more math to do, below are some additional calculators to help with crunching the numbers.