12/5/2023 0 Comments Tax bracket percentages azGiven that the aggregate of the regular tax rate and the 3.5% tax surcharge is capped at 4.5%, the top income tax rate (not counting the 3.5% tax surcharge) for high-income earners effectively becomes 1%. 1827 enacts a 4.5% cap on the effective tax rate applicable to individuals who would otherwise be subject to the 3.5% tax surcharge. 1827 - Effective for tax years beginning January 1, 2021, S.B. 1828, enacting comprehensive Arizona individual income tax reform. On June 30, 2021, Arizona Governor Doug Ducey signed into law S.B. 1828 – 4.5% Individual Tax Rate Cap and Individual Income Flat Tax Citing an effort to restore Arizona’s competitiveness, legislation was enacted to make changes to Arizona’s income tax system. Consequently, to the extent applicable, high-income earners would be taxed at a total combined state tax rate of 8% on any income exceeding the thresholds.īecause owners of pass-through businesses, such as partnerships and S-corporations, pay income tax under the individual income tax code, rather than the corporate income tax code, this combined 8% state tax rate was deemed by many to discourage in-state investment and diminish Arizona’s economic growth. In addition, under Proposition 208, which the electorate passed in November 2020, a 3.5% state income tax surcharge (the “3.5% tax surcharge”) is levied on taxable income exceeding the thresholds of $250,000 for single filers or $500,000 for joint filers (hereinafter referred to collectively as “high-income earners”). The State of Arizona adopted several significant tax measures during the 2021 legislative session, including an individual income flat tax, a high-earner tax bypass, and a federal SALT cap workaround.Ĭurrently, Arizona has four individual income tax brackets for individuals ranging from 2.59% to 4.5%.
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