New Flat Income Tax Rate For Arizona Residents in 2023
As of January 1, 2023, Arizona will implement a new flat income tax at a rate of 2.5%. Arizona previously had four income tax brackets with rates that ranged from 2.59% to 4.5%. Several legislative changes, including Senate Bill 1828, made significant modifications to the tax structure. Under the new rules, the four tax brackets were slashed into two for tax year 2022. For the 2023 tax year, which will impact tax returns filed in 2024, the state will begin using a flat 2.5% income tax. Now, every income earner will pay 2.5% across the board. Arizona is among eleven other states with a flat income tax and will have the lowest tax rate in the country (other than the states with no income tax).
The new Arizona flat tax rate is a tax cut for all Arizona income taxpayers, which means employees get to hold on to more of their hard-earned money. The move comes one year earlier than anticipated, which in 2022 Governor Doug Ducey said is due to the state’s continued economic growth. According to the state budget, the new tax rate was planned to take effect on January 1, 2024, or when the Arizona General Fund (state revenue surplus) exceeded $12.8 billion. The Arizona General Fund revenues amounted to $16.7 billion by the end of 2022, so the state could implement the new flat tax rate in January 2023. According to Governor Ducey, the state governments’ move to a flat individual income tax rate will provide tax relief for residents. The main benefit is that it will allow workers and small business owners to keep more of their hard-earned money. But nothing is perfect, and this tax plan comes with both pros and cons. Here’s a closer look at both.
Advantages of the New Tax
People who support the Arizona flat income tax plan say it is a good idea because it makes filing easier. It’s the same rate for everyone—and taxpayers can quickly figure out how much they owe.
Proponents also argue it will encourage people to make more money because they won’t be scared of getting bumped up into higher income tax brackets.
In a progressive tax system, like the one used for federal income taxes, people who earn more also pay a higher percentage of their income in taxes. That can discourage people from taking on higher-paying jobs or employers from offering higher salaries to employees.
But, with a flat tax, you don’t have to worry about keeping salaries at a certain level to avoid extra taxes. Instead, people can pursue bigger opportunities and still pay the same rate.
Disadvantages of the New Tax
The negatives mostly come from the argument that it’s more of a burden for people who earn less. It doesn’t seem fair that someone earning $20,000 should pay the same percentage of taxes on their income as a person earning $200,000.
From the state’s perspective, a tax plan that uses the same rate for everyone can mean lower revenue because high-income earners pay lower taxes.
But according to Governor Doug Ducey’s website, these tax cuts have helped with competitiveness by attracting more small businesses and economic activities to Arizona.
