Arizona Income Tax Rates & Brackets (Tax Year 2025 — Filed in 2026)

Remote Workers and Multi-State Taxation

Living in Arizona, Working for Out-of-State Employer

As an Arizona resident, you owe Arizona income tax on ALL income, regardless of where your employer is located.

What this means:

• Employer location does NOT determine tax obligation
• Income from employers in other states is taxable in Arizona
• Arizona residents are taxed on all income from all sources

Example: An Arizona resident working remotely for a California company owes Arizona income tax on that income. The physical location of the employer does not matter for Arizona residents.

Source: https://azdor.gov/individuals

Working in Arizona, Living in Another State

Non-residents who perform work IN Arizona owe Arizona income tax on income earned from Arizona sources.

Physical Presence Rule: Income is sourced to Arizona based on where work is physically performed. If you physically work in Arizona, that income is Arizona-source income subject to Arizona tax.

Source: https://azdor.gov/individuals

⚠️ Interstate Tax Risk Indicator

Remote workers involving Arizona commonly encounter dual taxation complications with specific states:

Working with these states requires careful planning:

• California – Aggressive residency audits for extended work periods; does not allow reciprocal credits
• New York – Applies convenience of employer rule for NY-based employers
• Massachusetts – Complex sourcing rules for remote workers
• Oregon – Special credit provisions may apply for certain situations

Source: https://azdor.gov/individuals and https://azdor.gov/business/withholding-tax/withholding-exceptions

“Convenience of the Employer” Rule

Arizona does not apply a “convenience of the employer” rule. Non-residents are taxed only on income from work physically performed in Arizona.

If you are a non-resident working remotely from outside Arizona for an Arizona employer, you do not owe Arizona income tax on that income. Only income earned while physically present and working in Arizona is subject to Arizona tax.

Reciprocal Agreements and Tax Credits

Arizona does not have traditional reciprocal agreements with other states.

However, Arizona provides special tax treatment for residents of specific states:

Withholding Exception: Non-residents who are residents of California, Indiana, Oregon, or Virginia AND who are allowed to claim a tax credit against Arizona tax for taxes paid to their state of residence may be exempt from Arizona income tax withholding.

Credit Provisions: Arizona nonresidents who file resident returns with California, Indiana, Oregon, and Virginia may qualify for a credit on their Arizona nonresident return (Form 140NR) for taxes paid to their home state.

Form: Form WEC (Withholding Exemption Certificate)
Credit Form: Form 309 (Credit for Taxes Paid to Another State or Country)

Source: https://azdor.gov/business/withholding-tax/withholding-exceptions

Multi-State Tax Filing

When earning income in multiple states:

1. File a resident return in Arizona reporting all income
2. File non-resident returns in other states where income was physically earned
3. Claim a credit on the Arizona return for taxes paid to other states (Form 309)

Important limitation: Credits are not available for taxes paid to states with no income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) or certain other states.

Forms required:

• Arizona Form 309 – Credit for Taxes Paid to Another State or Country
• Schedule showing income allocation if necessary

Source: https://azdor.gov/forms/tax-credits-forms/credit-taxes-paid-another-state-or-country