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Income Withholding and Reporting – Tipped Employees

On July 25, 2016, the Arizona Department of Revenue issued a withholding tax ruling (WTR 16-1) addressing the income tax withholding requirements for tip income. When the amount required to be withheld by an employer is more than the employee’s regular wage due to the requirement to withhold on tip income, Arizona recognizes the federal payment application priorities established by Treas. Reg. 31.3402(k)-1. The employer must first withhold federal and state taxes imposed on the regular wage, then use the remaining regular wage to satisfy the required federal withholding on the tip income, and finally use any remaining wage to satisfy the required Arizona withholding on the tip income. Thus, the employer is required to withhold Arizona taxes on tip income only to the extent the tax can be deducted and withheld from wages under the employer’s control. If the current wage under the employer’s control is not sufficient to satisfy the amount required to withheld for Arizona purposes, then the employer must withhold the unsatisfied amounts from the remaining regular wage in the following or succeeding pay period(s) during the calendar year. This ruling supersedes Withholding Tax Ruling WTR 92-1.

Read WTR 16-1

Income Withholding and Reporting – Withholding on Amounts Paid for Employee Benefits

On July 25, 2016, the Arizona Department of Revenue issued a withholding tax ruling (WTR 16-2) addressing whether amounts paid for employee benefits are considered wages subject to Arizona income tax withholding. Under federal law, to which Arizona conforms, the term “wages” includes all remuneration (other than fees paid to a public official) for services performed by an employee for an employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash, except for certain specifically excluded remuneration. Amounts paid for employee benefits that are included in wages and are subject to mandatory federal withholding are therefore subject to Arizona withholding, unless a specific exclusion applies. Amounts excluded from mandatory federal withholding are similarly excluded from Arizona withholding. This ruling supersedes Withholding Tax Ruling WTR 93-1.

Read WTR 16-2

Income Withholding and Reporting – Employee vs. Independent Contractor

On July 25, 2016, the Arizona Department of Revenue issued a withholding tax ruling (WTR 16-4) addressing whether the department accepts the IRS’s determination regarding the status of a worker for personal income withholding tax purposes, either as an employee or as an independent contractor. Generally, an employer withholds part of an employee’s wages as income tax. As an independent contractor does not have “wages” against which tax can be withheld, the IRS’s determination of employment status is critical for Arizona withholding tax purposes. This ruling supersedes Withholding Tax Ruling WTR 93-3.

Read WTR 16-4

Income Withholding and Reporting – Withholding on Pensions or Annuities

On July 25, 2016, the Arizona Department of Revenue issued a withholding tax ruling (WTR 16-5) explaining current law on the withholding of Arizona personal income tax from pensions and annuities. Withholding is not required unless voluntarily elected by a taxpayer. Further, the request must be in writing and accompanied by an Arizona Form A-4P, specifying the amount of income tax to be withheld. Because pension and annuity payments are treated as wages when withholding is elected, payors are subject to the requirements imposed on employers for reporting and paying withheld taxes. This ruling supersedes Withholding Tax Ruling WTR 99-2.

Read WTR 16-5