ARIZONA WITHHOLDING TAX RULING
WTR 99-2
(This ruling supersedes Arizona Withholding Tax Ruling WTR 92-2)
(Ruling revised to reflect repeal of Arizona Revised Statutes § 43-344 and amendment to Arizona Revised Statutes § 43-401)
This substantive policy statement is advisory only. A substantive policy statement does not include internal procedural documents that only affect the internal procedures of the agency and does not impose additional requirements or penalties on regulated parties or include confidential information or rules made in accordance with the Arizona administrative procedure act. If you believe that this substantive policy statement does impose additional requirements or penalties on regulated parties you may petition the agency under Arizona Revised Statutes § 41-1033 for a review of the statement.
ISSUES:
1. Is withholding required on the amount of a pension or annuity paid to an individual taxed in Arizona?
2. What are reporting requirements for the payor of the pension or annuity?
APPLICABLE LAW:
Arizona Revised Statutes (A.R.S.) § 43-401 requires every employer to withhold Arizona income tax from wages, salary, bonus or other emolument paid to any employee for services performed within the state.
A.R.S. § 43-404 extends withholding to individuals receiving pensions or annuities should these individuals elect to have Arizona income tax withheld.
A.R.S.§ 43-412 sets forth the requirements for the filing of Arizona Withholding Tax Returns.
DISCUSSION AND RULING:
Withholding Requirements
A.R.S. § 43-401 requires withholding only on wages or other compensation paid to an employee. Therefore, pension and annuity payments are not subject to mandatory Arizona income tax withholding.
However, A.R.S. § 43-404 allows a taxpayer to elect voluntary withholding on pensions or annuities. Such an election can only be made for pensions or annuities which are required to be included in the recipient's Arizona gross income. The request must be in writing and be accompanied by Arizona Form A-4P indicating the amount of Arizona income tax to be withheld. Arizona does not utilize withholding tables. The amount withheld is a percentage of federal withholding as specified in A.R.S. § 43-401 or a greater percentage as elected by the payee on Arizona Form A-4P. Therefore, Arizona withholding is applicable only to the extent that there is federal withholding.
When withholding is elected, the payments are treated as wages paid by an employer to an employee for a payroll period. Therefore, the payor is subject to the withholding, reporting and payment requirements of the withholding statutes. A.R.S. § 43-401.C specifies the dates on which income taxes withheld are to be remitted and requires the filing of a quarterly reconciliation of income taxes withheld. Payments are accompanied by Arizona Form A1-WP with quarterly reports made on Arizona Form A1-QRT. Arizona Form A-1R is the annual reconciliation of income tax withheld for payors filing quarterly reports. A.R.S. § 43-401.C also provides that certain employers (payors) may qualify for annual payments of withholding taxes. Payors who qualify for annual payments file only an annual report on Arizona Form A1-APR.
Information Reporting Requirements
Arizona requires information reporting of pension and annuity payments only when Arizona withholding has been elected. Pursuant to A.R.S. §§ 43-401 and 43-412, if the federal Forms 1099-R for Arizona taxpayers include Arizona withholding, the Forms 1099-R must be transmitted with either the Arizona Form A1-R or the Arizona Form A1-APR. The filing due date is on or before February 28.
Mark W. Killian, Director
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