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Arizona to Implement 2.5% Flat Tax Ahead of Schedule

Governor Doug Ducey announced that Arizona will implement its new 2.5% flat income tax rate on January 1, 2023, a full year ahead of schedule. According to Gov. Ducey, the accelerated implementation is the result of the state’s “continued economic growth and record surplus.”

The flat tax was adopted as part of the 2022 fiscal year budget, signed on June 30, 2022, and was originally scheduled to be phased in over three years, beginning January 1, 2024. However, a memo prepared by the Joint Legislative Budget Committee and the Governor’s Office of Strategic Planning and Budgeting determined that Arizona’s General Fund revenues exceed the statutory threshold required to immediately implement the flat tax.

State income tax rates in Arizona currently range from 2.59% to 4.5%. Come January 1st, 2023 the rate will be 2.5%. According to the Tax Foundation, Arizona will join 11 other states with a flat income tax and will have the lowest rate among these states.

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For more information about Arizona’s new 2.5% flat income tax, please contact Pat Derdenger or Karen Lowell

Tags: Tax
  • Karen Jurichko Lowell

    Karen Lowell is a partner in Lewis Roca’s Business Transactions and Tax practice groups, advising clients on a variety of business and tax planning matters.

    With a proven background in resolving business tax disputes, Karen guides clients on sales, use, and property tax matters ...

  • Pat  Derdenger

    Pat is the go-to lawyer for state and local tax issues. With his unmatched knowledge and strong communication skills, he ensures his clients get the best outcome for their bottom line.

    Clients rely on Pat Derdenger for his deep knowledge of state and local tax issues that vitally impact ...

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