Payroll Done Right

Arizona Payroll Requirements: What Employers Need to Know in 2026

Arizona payroll became significantly simpler in recent years following the state's move to a flat 2.5% income tax rate, which took full effect for the 2023 tax year and continues in 2026. Employers withhold at this flat rate on all taxable wages paid to Arizona resident employees, and non-residents with Arizona-source income are subject to the same rate. The simplicity of a single rate reduces the chance of bracket-misapplication errors that are more common in states with graduated schedules. Withholding is administered by the Arizona Department of Revenue, and employers file the quarterly A1-QRT return to report amounts withheld each quarter.

On the unemployment insurance side, the Arizona Department of Economic Security (AZDES) administers SUI. In 2026, the taxable wage base is $8,000 per employee, and new employers pay a rate of 2.0% — meaning the maximum SUI obligation for a new employer's first year is $160 per worker. Experienced employers receive an assigned rate based on their layoff history and the overall health of the state unemployment fund. Quarterly UI wage reports are filed through the AZDES online portal. Learn how Arizona SUI experience rating is calculated and how reserve account balances affect your assigned rate.

Arizona's minimum wage in 2026 is $14.70 per hour, set through annual CPI indexing under Proposition 206, which voters approved in 2016. The minimum adjusts each January 1, so employers should verify the rate at the start of every calendar year. Arizona does allow a tip credit: tipped employees must receive a direct cash wage of at least $3.00 per hour below the standard minimum, provided tips bring the total to $14.70 or more. If an employee's tips fall short on any given workweek, the employer must make up the difference.

Proposition 206 also established mandatory paid sick time for most Arizona employees. In 2026, employers with three or more employees must provide up to 40 hours of paid sick leave per year, accrued at one hour for every 30 hours worked. Employers with fewer than three employees must provide up to 24 hours of paid sick leave on the same accrual schedule. This is the Healthy Families, Healthy Workplaces Act, and it applies to part-time and seasonal workers in addition to full-time staff. See the full Arizona payroll compliance guide for sick leave recordkeeping requirements and prohibited retaliation rules.

Final paycheck rules in Arizona differ depending on how employment ends. For employees who are discharged, the final paycheck is due within three business days of termination. For employees who resign voluntarily, the final check is due on the next regular payday following the last day worked. Employers who miss these deadlines may face penalty wages equivalent to the employee's regular wages for each day payment is delayed, up to a statutory cap. Arizona does not have a state paid family and medical leave program in 2026.

New hire reporting in Arizona must be submitted within 20 days of hire to the Arizona New Hire Reporting Center. Required information includes the employee's name, address, Social Security number, start date, and the employer's federal EIN and state tax ID. Employers can report online or by fax. For businesses setting up payroll in Arizona for the first time, the registration process involves both the Arizona Department of Revenue for withholding and AZDES for unemployment insurance. Walk through the Arizona new employer registration process step by step, including account numbers you'll need before your first payroll run.