Payroll Arizona: Employer Tax and Software Guide

Arizona has one of the simplest tax structures in the country and one of the more demanding wage and hour regimes, which is a combination most guides fail to convey.

On the tax side there is almost nothing to get wrong. No local income tax in any city or county. No state disability program. No paid family leave contribution. An unemployment wage base of $8,000, among the lowest anywhere, which caps unemployment cost at $160 per employee a year for a new employer.

The demands sit elsewhere. Employees choose their own withholding percentage rather than the employer applying a rate, and an employee who misses the five-day deadline is defaulted to a number that may be badly wrong for them. There are three different minimum wages inside the state, and one city eliminated its tip credit entirely this January. Earned paid sick time accrues from the first hour worked and the balance has to appear on every pay stub, not on request. And a late final paycheck exposes you to treble damages.

This guide covers what Arizona requires, what changed for 2026, and how 10 payroll providers price the work.

What Arizona requires from employers

State income tax

Arizona moved to a flat 2.5 percent income tax in 2023, one of the lowest flat rates in the country. That figure is what an employee ultimately owes on their return. It is not, however, what the employer withholds, and confusing the two is the most common mistake in Arizona payroll setup. Withholding runs on the percentage the employee elects on Form A-4, covered in the next section. The supplemental withholding rate on bonuses and similar payments is a flat 2.5 percent.

Unemployment insurance

The low wage base is the headline. Unemployment tax stops accruing once an employee crosses $8,000 in wages for the year, which for a full-time worker at the state minimum wage happens inside the first quarter. New employers hold the 2.00 percent rate for at least two calendar years before the Department of Economic Security assigns an experience rating, after which positive-rated employers typically land well below one percent.

Registration, returns, and reporting

One registration form covers both agencies, which is a genuine convenience compared with states that require separate applications. Our guide to new hire reporting covers what each report must contain.

Form A-4 and the employee-elected rate

This is the part of Arizona payroll that has no real equivalent elsewhere, and it is worth understanding precisely because it inverts the usual arrangement.

In most states the employer applies a withholding formula to information the employee provides about filing status and dependents. In Arizona the employee simply picks a percentage of gross taxable wages, and the employer withholds exactly that. There are no allowances, no brackets, and no calculation for the employer to perform beyond multiplication.

Two consequences follow for the employer. First, the five-day deadline is short and the default is a real outcome rather than a formality: an employee whose actual liability sits closer to 3.5 percent and who never filed will be under-withheld all year and owe at filing. Second, Form A-4 stays with the employer rather than going to the Department of Revenue, so the completed forms are a record you are responsible for holding and producing if asked.

Three minimum wages and earned paid sick time

The wage floor depends on the city

Arizona has a statewide minimum wage that adjusts every January for inflation, plus two cities with their own higher ordinances. All three moved on January 1, 2026.

The statewide increase of forty-five cents came from the inflation formula in A.R.S. 23-363, tied to the Consumer Price Index between August 2024 and August 2025. Because the adjustment is automatic, there is no legislative event to watch for and the rate simply changes each January.

Where an employee works across jurisdictions in a single week, each jurisdiction's rate applies to the hours worked there. Twenty hours in Phoenix and twenty in Tucson means $15.15 for the first block and $15.45 for the second. Our guide to the minimum wage for tipped employees covers how the federal and state tests interact.

Earned paid sick time

Arizona has required paid sick time since July 1, 2017 under the Fair Wages and Healthy Families Act, codified at A.R.S. 23-371 through 23-381. Accrual runs at one hour for every 30 hours worked and begins at the commencement of employment.

The headcount test is not a simple snapshot. Where the number of employees fluctuates above and below fifteen across the year, the 40-hour cap applies if the employer maintained fifteen or more on the payroll for some portion of a day in each of twenty different calendar weeks, in either the current or preceding year, whether or not those weeks were consecutive. Employees exempt from overtime are assumed to work forty hours a week for accrual purposes unless their normal week is shorter.

Pay frequency and final pay

The treble damages provision is the detail that changes the risk calculation. Arizona has no state overtime statute and a light regulatory touch generally, but an employee who is paid late can recover three times the unpaid amount, which turns a modest administrative slip into meaningful exposure. Our guide to the final paycheck for a terminated employee covers how these rules differ across states, and overtime pay covers the federal rules that apply here.

10 payroll providers for Arizona employers compared

Every provider below files Arizona state withholding and unemployment insurance. Because there is no local income tax and the withholding calculation is trivial, the differentiators here are unusual: whether the platform prints earned paid sick time on the statement, and whether it can assign different minimum wage rates by work location for employers with Tucson or Flagstaff staff.

OnPay

One plan at $49 per month plus $6 per employee, everything included, no tiers to climb. Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price. OnPay maintains dedicated Arizona paid sick leave documentation and accrual policy setup, which is directly relevant given the pay stub disclosure requirement.

Gusto

The most common first payroll purchase for US small businesses, with automatic tax filing, published pricing, and the strongest onboarding experience among payroll-first platforms. Simple runs $49 per month plus $6 per employee after a base increase in early 2026.

The constraint is the single-state limit on Simple. One hire in California, Nevada, or New Mexico moves you to Plus at $80 plus $12 per employee.

Patriot Software

The cheapest legitimate full-service payroll on the market. Full Service is $37 per month plus $5 per employee and includes federal and state tax filing plus new hire reporting. Basic is $17 plus $4 if you file taxes yourself, which in Arizona means handling the A1-QRT and UC-018 quarterly returns by hand.

Square Payroll

At $35 per month plus $6 per person, Square is the cheapest full-service option with published pricing. For a Phoenix or Tucson restaurant already running Square point of sale, timecard data flows straight into payroll, and because hours drive both sick time accrual and the correct city wage rate, having that data in one system removes two separate reconciliation problems.

SurePayroll

Owned by Paychex and built for very small employers and household employers. Full Service is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee rather than a per-state charge.

QuickBooks Workforce Payroll

Core is $50 per month plus $6.50 per employee, and the argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger without an export.

ADP RUN

ADP has the deepest tax compliance engine in the category. In Arizona that depth converts into value mainly at the multi-jurisdiction wage boundary, since assigning the correct Tucson or Flagstaff rate by work location is closer to a configuration problem than a tax one, and larger platforms handle it as routine.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual. Contracts typically run a year with automatic renewal and a 30 to 60 day cancellation window.

Paychex Flex

Paychex competes on service rather than software, with a named representative at higher tiers. Pricing is quote-only and quarterly administrative charges appear regularly in customer reports. The Arizona case is specific: if you have staff across Phoenix, Tucson, and Flagstaff and want someone to call when a wage rate question arises, that access has value.

Paylocity

Paylocity sits between small-business payroll and full HCM, aimed at companies that have outgrown basic payroll. It publishes detailed per-state tax facts including Arizona, and leave accrual tracking is native rather than an add-on, which matters given the pay stub disclosure requirement. Pricing is quote-based and implementation is a project rather than a signup.

Rippling

Rippling unifies payroll, HR, and IT provisioning on one employee record. The core platform is $35 per month plus $8 per employee, with payroll as a separate module. Real-world all-in costs land between $25 and $45 per employee per month once you assemble a working configuration.

What each provider actually costs an Arizona employer

The table below models published rates at three headcounts. Arizona is one of the states where these figures represent close to the whole software cost, since there is no disability carrier, no paid leave remittance, and no local filings to add on top.

Square is the cheapest published option at every headcount and Patriot runs close behind, though Patriot charges $12 per month per additional state and sells time and attendance separately, which matters more here than elsewhere because sick time accrual depends on hours data. Gusto Simple is competitive until one out-of-state hire forces the Plus tier, taking a 25-person payroll from $199 to $380 per month.

Choosing a payroll provider for Arizona

Before you choose

FirstHR does not process payroll, file payroll taxes, or administer benefits. Every provider above does something we do not, and if running payroll is the problem in front of you, one of them is the answer.

What we handle is the document layer that feeds payroll: onboarding workflows, e-signature on Form A-4, I-9s, and offer letters, employee records, and document management for 5 to 50 employee US teams at a flat $98 to $198 per month. Two of the Arizona requirements above are document and workflow problems rather than payroll problems, namely getting Form A-4 elected and signed inside the five-day window so nobody lands on the default rate by accident, and filing the new hire report within twenty days of the hire date. Our Arizona HR compliance guide covers the wider set of state obligations beyond payroll.

Frequently Asked Questions

What are the Arizona payroll taxes an employer has to handle?

Two at state level plus federal: income tax withholding at the percentage each employee elects on Form A-4, and unemployment insurance on the first $8,000 of wages at 2.00 percent for new employers. There is no local income tax, no state disability program, and no paid family leave contribution. See our overview of payroll taxes by state for how this compares elsewhere.

What is Arizona Form A-4 and what happens without it?

The Employee's Arizona Withholding Election. Rather than allowances or brackets, the employee picks a flat percentage of gross taxable wages from a fixed list: 0.5 through 3.5 percent in half-point steps, or zero where an exemption applies. Without a form within five days of hire, the employer withholds at the 2.0 percent default. The form stays with the employer and an exemption claim renews annually.

What is the Arizona unemployment insurance wage base and rate?

$8,000 per employee for 2026, among the lowest in the country. New employers pay a flat 2.00 percent for a minimum of two calendar years, capping annual cost at $160 per person. Experienced employers range from 0.03 to 8.36 percent. Quarterly wage reports go on Form UC-018. Our guide to state unemployment tax covers how experience rating works.

What is the minimum wage in Arizona?

$15.15 per hour statewide as of January 1, 2026, adjusted annually for inflation under A.R.S. 23-363. Tucson is $15.45 and Flagstaff is $18.35. The tip credit is capped at $3.00 statewide and in Tucson, giving tipped cash wages of $12.15 and $12.45, but Flagstaff eliminated its tip credit entirely in 2026 so every employee there receives the full rate regardless of tips.

Does Arizona require paid sick leave?

Yes, under A.R.S. 23-371 through 23-381. Accrual is one hour per 30 hours worked from the commencement of employment. Employers with 15 or more employees allow up to 40 hours per year; smaller employers up to 24 hours. A 90-day waiting period before use is permitted, front-loading is allowed instead of hourly accrual, and unused time carries over subject to the annual cap.

Does earned paid sick time have to appear on the pay stub in Arizona?

Yes. The employer must provide, in the paycheck or an attachment, the sick time available, the amount taken to date that year, and the pay received as sick time. This is stricter than most state sick leave laws, which typically require disclosure only on request, and a platform that tracks accrual internally without printing it does not satisfy the requirement.

How often must Arizona employers pay employees?

At least twice a month under A.R.S. 23-351, on two paydays no more than sixteen days apart and designated in advance. Monthly payroll is not permitted for most employees, which catches out employers extending a payroll calendar built in another state.

When is a final paycheck due in Arizona?

Within seven working days or by the next regular payday, whichever comes first, for a discharged employee, under A.R.S. 23-353. An employee who resigns is paid on the next regular payday. Late payment exposes the employer to treble damages under A.R.S. 23-355, meaning three times the unpaid amount.

How long do Arizona employers have to report a new hire?

Twenty days from the date of hire, reported to the Arizona Department of Economic Security New Hire Reporting Center, with rehires counting again. Alongside it, a new Arizona hire needs Form A-4 within five days, the federal W-4 and I-9, and the written notice of rights required under the Fair Wages and Healthy Families Act.