Arizona Paycheck Calculator

Why Arizona Has America's Lowest Income Tax

Arizona made history in 2023 by implementing a 2.5% flat income tax - the lowest flat tax rate in the United States. This dramatic simplification replaced a complex progressive tax system with rates up to 4.5%, saving Arizona taxpayers billions annually while making the state one of the most tax-friendly in America.

The 2.5% Flat Tax Explained

Every Arizona taxpayer - whether earning $30,000 or $3 million - pays exactly 2.5% of their income in state taxes. No brackets, no complexity, no surprises. This makes tax planning incredibly simple and predictable.

What's taxed at 2.5%:

• Wages and salaries
• Business income
• Capital gains
• Interest and dividend income
• Rental income

What's NOT taxed: Social Security benefits are completely exempt from Arizona state income tax, making Arizona one of the most retirement-friendly states in America. This alone saves retirees thousands annually.

How Much You Save with 2.5% Tax

Example 1: $75,000 Salary

• Arizona state tax: $1,875 (2.5%)
• California state tax: ~$4,200 (5.6% effective)
• Annual savings in AZ: $2,325
• 10-year savings: $23,250

Example 2: $150,000 Salary

• Arizona state tax: $3,750 (2.5%)
• California state tax: ~$10,200 (6.8% effective)
• Annual savings in AZ: $6,450
• 10-year savings: $64,500

Example 3: $300,000 Salary

• Arizona state tax: $7,500 (2.5%)
• California state tax: ~$24,500 (8.2% effective)
• New York state tax: ~$19,500 (6.5% effective)
• Annual savings vs CA: $17,000
• 10-year savings vs CA: $170,000

That $17,000 annual savings, invested at 7% return, becomes $235,000 over 10 years!

The California Exodus to Arizona

Arizona is the #1 destination for Californians leaving the Golden State. Between 2020-2024, over 350,000 Californians relocated to Arizona, with taxes being a primary motivator. A family earning $200,000 in California pays approximately $13,500 in state income tax. The same family in Arizona pays $5,000 - an $8,500 annual savings.

Phoenix vs. Los Angeles Cost Comparison ($150,000 salary):

• State income tax: $3,750 (AZ) vs. $10,200 (CA) = $6,450 saved
• Median home price: $435K (Phoenix) vs. $925K (LA) = $490K less
• Property tax: ~$4,350/year (AZ) vs. ~$9,250/year (CA) = $4,900 saved
• Total first-year savings: Over $11,000 in ongoing costs alone

Over 30 years, that $11,000 annual savings compounds to over $1 million!

Arizona vs. Other States: Tax Comparison

State	Tax Rate	Tax on $100K	Annual Savings in AZ
Arizona	2.5% flat	$2,500	—
California	Up to 13.3%	~$6,500	$4,000
New York	Up to 10.9%	~$5,500	$3,000
Oregon	Up to 9.9%	~$7,600	$5,100
Minnesota	Up to 9.85%	~$6,200	$3,700
Colorado	4.4% flat	$4,400	$1,900
Utah	4.55% flat	$4,550	$2,050

Arizona vs. No-Income-Tax States

Nine states have no income tax at all (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming). While 0% beats 2.5%, Arizona offers unique advantages these states don't:

• Lower property taxes than Texas and New Hampshire (which rely heavily on property tax for revenue)
• Better climate than Alaska, South Dakota, Wyoming (300+ days of sunshine)
• Lower cost of living than Washington (Seattle/Bellevue are extremely expensive)
• More economic diversity than Nevada (not dependent on tourism/gaming)
• Strong job market: Intel's $20B semiconductor expansion, TSMC's $40B investment, growing tech sector

The 2.5% income tax is a small price for Arizona's combination of great weather, affordable housing, strong economy, and lifestyle amenities.

Real Estate + Tax Savings

The combination of low income tax and affordable housing makes Arizona incredibly attractive:

Typical California → Arizona Transplant ($175K household income):

• Home purchase savings: $400K-600K less for comparable home
• Annual state tax savings: $8,750
• Lower mortgage payment: $2,400/month savings
• Property tax savings: ~$4,000/year
• Total first-year benefit: $40,000+
• 30-year benefit: Over $1.2 million

Understanding Your Arizona Paycheck

Federal Income Tax

Arizona residents pay the same federal income tax as everyone else. The U.S. has progressive tax brackets from 10% to 37%.

2024 Federal Tax Brackets (Single):

• 10% on income up to $11,600
• 12% on income $11,601 to $47,150
• 22% on income $47,151 to $100,525
• 24% on income $100,526 to $191,950
• 32% on income $191,951 to $243,725
• 35% on income $243,726 to $609,350
• 37% on income over $609,350

FICA Taxes (Social Security & Medicare)

Social Security: 6.2% on wages up to $168,600 (2024). Maximum annual tax: $10,453.

Medicare: 1.45% on all wages, plus additional 0.9% on income over $200,000 (single) or $250,000 (married).

Why Arizona's Tax System Is So Simple

Arizona's flat tax eliminated complexity. No more tracking which income falls in which bracket. No more complex worksheets. Just multiply your income by 0.025 (2.5%) and that's your state tax. This simplicity saves time, reduces errors, and makes tax planning straightforward.

Before 2023 (Old Progressive System):

• 2.59% on first $28,653
• 3.34% on $28,653 to $57,305
• 4.17% on $57,305 to $171,916
• 4.50% on income over $171,916

After 2023 (New Flat Tax):

• 2.5% on ALL income

Much simpler, and most taxpayers pay less!

Retirement in Arizona

No Tax on Social Security

Arizona does not tax Social Security benefits at all. This saves retirees thousands annually. A couple receiving $50,000 in Social Security pays $0 Arizona state tax on that income. In Colorado, Connecticut, or other states that tax Social Security, they'd pay $2,000+.

Low Tax on Retirement Income

While pension income, 401(k) withdrawals, and IRA distributions are taxable, they're only taxed at 2.5% - one of the lowest rates in America. Compare this to California (up to 13.3%), New York (up to 10.9%), or Minnesota (up to 9.85%).

Retirement Income Example ($80,000 total):

• Social Security: $30,000 (NOT taxed)
• 401(k) withdrawals: $50,000 (taxed at 2.5% = $1,250)
• Total AZ state tax: $1,250

In California, the same retiree would pay approximately $3,200 in state taxes (Social Security exempt, but 401(k) taxed higher). That's $1,950 more annually, or $29,250 over 15 years of retirement.

Snowbird Paradise

Arizona's mild winters make it perfect for snowbirds from Canada, Minnesota, Wisconsin, and other cold-weather locations. Many establish Arizona residency to benefit from the 2.5% tax rate year-round, even if they spend summers elsewhere.

Residency requirements: Spend 6+ months per year in Arizona, get AZ driver's license, register to vote, file taxes as AZ resident. This locks in the 2.5% rate on all income.

Arizona's Growing Economy

Tech & Semiconductor Boom

Arizona is experiencing massive economic growth, particularly in technology and semiconductors:

• Intel: $20 billion expansion in Chandler (creating 3,000 jobs)
• TSMC: $40 billion semiconductor plant in Phoenix (4,500 jobs)
• Tech companies: Coinbase, DoorDash, ZipRecruiter, Credit Karma all opened major offices
• Remote workers: Thousands relocating from CA, NY, WA for lower costs + taxes

No Tax Increases on Horizon

Arizona's flat tax is constitutionally protected by Proposition 307 (2021), which requires a 2/3 supermajority in the legislature to raise taxes. This makes tax increases extremely difficult, giving residents confidence that the 2.5% rate will remain stable.

Frequently Asked Questions

Is Arizona really the lowest income tax state?

Yes! Arizona has the lowest flat income tax rate in America at 2.5%. Nine states have no income tax at all (0%), but among states with income tax, Arizona's 2.5% is the absolute lowest. North Dakota has 2.9%, and Pennsylvania has 3.07% - both higher than Arizona.

When did Arizona switch to a flat tax?

January 1, 2023. Arizona previously had a progressive system with rates from 2.59% to 4.5%. The flat tax simplified the system and reduced taxes for the vast majority of Arizonans.

Does Arizona tax Social Security?

No! Social Security benefits are completely exempt from Arizona state income tax. This makes Arizona one of the best states for retirees.

How much will I save moving from California to Arizona?

It depends on your income. At $75K: ~$2,300/year. At $150K: ~$6,500/year. At $300K: ~$17,000/year. Plus you'll save on housing costs and potentially property taxes.

Are there local income taxes in Arizona?

No! Arizona's 2.5% is the only income tax you pay. There are no county or city income taxes anywhere in Arizona.

What about Arizona property taxes?

Arizona property taxes are moderate, averaging 0.62% of home value (Maricopa County). This is much lower than Texas (1.8%), New Jersey (2.5%), or Illinois (2.3%). On a $400K home, expect about $2,480/year in property tax.

Does Arizona tax capital gains?

Yes, at the same 2.5% rate. Unlike some states that tax capital gains at higher rates, Arizona treats all income the same - a simple 2.5% flat tax.

Can Arizona raise the tax rate easily?

No. Proposition 307 (2021) requires a 2/3 legislative supermajority to increase taxes. This is very difficult to achieve, protecting taxpayers from easy tax hikes.

Is Phoenix more expensive than people think?

Phoenix is affordable compared to California, New York, or Seattle, but prices have risen significantly. Median home price is now $435K (up from $275K in 2019). However, this is still far below Los Angeles ($925K), San Diego ($875K), or Bay Area ($1.3M+).

How accurate is this calculator?

Very accurate for the inputs provided. We use official 2024 IRS tax brackets and Arizona's 2.5% flat tax rate. The calculator doesn't account for specific deductions or credits you might qualify for, which could lower your actual tax further.