Bringing a business to Phoenix often means hiring locally. Arizona employers have state duties on top of the federal ones: income tax withholding, unemployment insurance and required notices, among others. This guide explains the basic accounts and steps for a first Arizona hire. It is general information, not legal or tax advice. Employment law has many details, so check with the agencies involved or a professional.
Key takeaways
- New Arizona employers register for state withholding and unemployment insurance, often with one Arizona Joint Tax Application.
- The Department of Revenue forwards the joint application to the Department of Economic Security, which decides unemployment insurance liability.
- Employees choose their Arizona withholding percentage on a state form.
The joint application
According to the Arizona Department of Revenue, the Arizona Joint Tax Application is used to apply for transaction privilege tax, use tax, employer withholding and unemployment insurance. It is called joint because both the Department of Revenue and the Department of Economic Security use it. The Department of Revenue forwards a copy to Economic Security, and each agency notifies the business separately after processing.
Withholding
Employers withhold Arizona income tax from employee wages and send it to the Department of Revenue. Arizona uses its own withholding election form, where employees choose a percentage of their wages to withhold. Give new hires this form along with the federal forms. File and pay withholding on the schedule the Department of Revenue sets.
Unemployment insurance
The Department of Economic Security decides whether your business must pay Arizona unemployment insurance taxes. If you are liable, it sends a determination with your account number, the date coverage starts and your tax rate. Employers then file quarterly wage reports and pay the tax. The department has an online system for employers.
State accounts at a glance
| Account | Agency | What it covers |
|---|---|---|
| Withholding | Department of Revenue | Arizona income tax from wages |
| Unemployment insurance | Department of Economic Security | UI tax on wages, quarterly reports |
| TPT, if needed | Department of Revenue | Tax on taxable business activity |
| Workers’ compensation | Insurance carrier or approved plan | Coverage for work injuries |
Workers’ compensation
Arizona generally requires employers to carry workers’ compensation insurance for employees. The Industrial Commission of Arizona oversees the system and can answer questions about coverage requirements. Arrange coverage before your first employee starts.
Tip: Put your first payroll date on the calendar and work backward. Register for withholding and unemployment insurance, set up payroll and arrange workers’ compensation before that date, not after.
New hire paperwork
- Federal forms, including employment eligibility verification.
- The Arizona withholding election form.
- New hire reporting to the state, within the required time.
- Required workplace posters and notices.
- Written job offers that state pay and basic terms.
Wages and paid sick time
Arizona has its own minimum wage, which is adjusted each year, and requires earned paid sick time for most employees. Some cities in the state have set their own rules on certain employment matters. The Industrial Commission of Arizona publishes current minimum wage and sick time information. Check it before setting pay and policies.
Heat and workplace safety
If your employees work outdoors or in hot indoor spaces, plan for heat. Provide water, rest and shade, and adjust schedules in summer. State and federal safety agencies publish guidance for heat at work. See Living With Phoenix Summer Heat: A Newcomer’s Guide for general heat basics.
Contractors vs employees
Some new businesses start with independent contractors instead of employees. Whether a worker is truly a contractor depends on how the work is controlled and paid, not on what the contract calls them. Federal and Arizona agencies each have their own tests. Misclassifying employees as contractors can lead to back taxes and penalties, so check the rules before you decide how to engage someone.
Records to keep
Keep payroll records, time records, tax filings and copies of new hire forms for the periods the agencies require. Good records make quarterly reports easier and help if an agency has questions later.
Remote employees
If you hire people who work remotely from Arizona, you generally have Arizona employer obligations for them even if your business is based elsewhere. The reverse is also true for Arizona businesses with staff in other states. Payroll providers can help, but the registrations are still your responsibility.
Common mistakes
The most common mistake is running the first payroll before state accounts are set up. Another is missing the new hire report or forgetting the Arizona withholding form. Employers new to Arizona also sometimes rely on another state’s minimum wage or sick time rules. Check Arizona’s rules first, then any city rules that apply.
Frequently asked questions
What is the Arizona Joint Tax Application?
A single application used by the Department of Revenue and the Department of Economic Security for TPT, withholding and unemployment insurance registration.
Who decides if I owe unemployment tax?
The Arizona Department of Economic Security, after reviewing your application.
Does Arizona require paid sick time?
Yes, for most employees. The Industrial Commission of Arizona publishes the rules.
See Arizona Transaction Privilege Tax (TPT) License Basics for sales tax licensing, or go back to Moving a Business to Phoenix: A Step-by-Step Checklist.