Payroll Arizona, Unique Aspects of Arizona Payroll Law and Practice
Can we ever be too safe? Arizona, being a right-to-work state and an attractive business destination, sees its share of businesses starting up. It can be easy to forget that, while many people are employed in these new ventures, they may not know the nuances of how payroll works.
Before you start any new venture or business idea, we want you to be aware of the process and procedures for payroll in Arizona. This way you'll be equipped with what you need when it comes time to hire employees and order an appropriate level of equipment for your needs.
1. How can a business go about paying employees?
If you're new to payroll in Arizona, it can be daunting to know where to start when it comes to making the payments your employees will rely on. You'll need to keep in mind that when they are first hired, they will not be subject to the state's withholding tax system. This means you have a window of time, from day one with them until their first payday, in which you can withhold money from their salary for taxes based on your own judgment about how much you'll need for this purpose.
An accountant or bookkeeper can help with this, but you should be aware that the act of the employer withholding money from an employee's salary for federal taxes is not an obligation. After you've withheld enough to cover your tax liability for the year, you may have cash on hand to pay employees who will need it later in the year.
If there is insufficient money in the bank to cover payroll needs, you'll need to get a loan or sell assets. There are people and companies who will work with you in this situation if they know about what's going on. You'll need to agree on a mechanism for getting paid, such as a scheduled pay date every two weeks instead of just one payday.
2. What are the payroll taxes in Arizona?
The Arizona Department of Revenue (ADR) has an online calculator for calculating payroll taxes based on your own company's and employee's earning and expenses. This is a general tool, and you should always reach out to the ADR for more specific recommendations about what payroll and withholdings you'll need to pay as you build your business in Arizona.
3. Should I have employees submit W-2 forms?
It's good practice for any business that will pay its employees regularly to require them to submit copies of their W-2 forms by the tax deadline. This will help you file your taxes and make sure you have the correct amount of income to get from the government. If you don't have these forms available, even if your company is small, you'll face tax penalties.
Tax laws are specific about how much money an employer must pay out to employees in withholding taxes for the year it starts, and this can be a lot of money if a new business is paying large salaries.
As you hire new employees, or adjust them as they earn changes in their work status or get promoted, being aware of Arizona's payroll laws can help employees get paid properly without having to worry about cash flow issues. Although it's not required to get an attorney or a payroll professional to make sure everything works out, it makes sense.
When you're a small business owner, it's easy to let things slide. While this can be appealing in the short term, ignoring unexpected issues that crop up after you get your feet wet can end up costing you money and time later on.
Arizona is a great place for new businesses and new employment opportunities. Knowing the ins and outs of Arizona payroll law and practice before you start can prevent problems later on down the road.
You'll want to make sure you have the right payroll services in Arizona, as well as a general understanding of how payroll works in this state. Payroll Solutions is here to help make sure you have a smooth transition into the new hire process and beyond!
Payroll Solutions: A Proven Leader in Payroll Services
The team at Payroll Solutions offers premier payroll services for all cities and towns across Arizona. Our online system is easy for clients to use, and our experts are always on hand with support and advice. Contact us today to get started with your next payroll project!
We also provide services for Arizona nonprofits and government entities. Start a payroll project with us today by calling or sending us an email!
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Arizona Payroll Requirements
Arizona requires that all employers withhold and pay over to the state all federal taxes that are required of them. The withholding rules are detailed in 26 C.F.R. Section 3101: generally, the employer must withhold and pay over to the state at least 30 percent of each employee's gross wages, up to $7,000 per year.
All employers in Arizona who want to avoid the withholding tax must apply for a federal exemption.
Arizona Tax Withholding Limits
A business that pays more than $7,000 in gross wages to any one employee in a year must get a federal exemption from having to pay the state withholding taxes. The amount of money an employer has to pay is determined by how many employees they have, and by their wages, for the year. For example, if James Jones is paid $600 on January 1st of this year and that's all his gross wages for the entire year, he would not have to pay any state taxes because this is less than $7,000. The Arizona withholding requirements also apply to any tips that are part of the employee's gross income.
The Arizona tax withholding limits are outlined in the table below:
Number of Employees Gross Wages per Year Total Wages for the Year 1-4 $7,000 $49,200 5-10 $7,000 $56,500 11-20 $7,000 $72,000 21 or more $7,000 + 2% x number of employees over 20 $105,300 + 2% x number of employees over 20
The above chart is a good starting point for calculating how much money an employer will need to withhold.
Conclusion
A business that wants to avoid paying the state withholding taxes must obtain a federal exemption. The federal exemption is applied on a monthly basis, and an employer does not need to submit paperwork or wait for a refund.
If you have questions about payroll taxes in Arizona, or about other employment laws that may apply to your business, contact us today! Our experienced staff will be happy to help you with any legal issues you may be facing – from payroll issues to general employment law questions. Call 602-041-0727 or contact us online today!
For more information visit the Arizona Department of Revenue website. For information on how to become an employer, visit the Arizona Division of Employment and Housing website.