Arizona Tax Calculator 2026 — 2.5% Flat Income Tax Rate

Q: How did Arizona's flat tax change affect taxpayers?

Arizona's shift to a flat 2.5% rate in 2023 benefited most taxpayers, particularly higher earners who previously paid up to 4.5%. A taxpayer earning $100,000 under the old system might have paid roughly $3,400 in state tax, compared to about $2,500 under the flat rate. The change was funded in part by stronger-than-expected state revenue growth.

Arizona Tax Calculator

Annual Gross Income ($)

Filing Status

Income Tax
2.5%
flat rate
Sales Tax
8.40%
avg combined
Property Tax
0.62%
below average

Arizona Income Tax

Arizona implemented a flat 2.5% income tax rate effective for the 2023 tax year, making it one of the lowest income tax rates among states that levy an income tax. This was a dramatic shift from the previous graduated system, which had rates ranging from 2.55% to 4.5% (and briefly included a 3.5% surcharge on high earners that was effectively blocked). The flat tax was signed into law by Governor Doug Ducey as part of Senate Bill 1828 in 2021.

Under the flat rate, all Arizona taxable income is taxed at 2.5% regardless of how much you earn or your filing status. Arizona conforms to the federal standard deduction amounts ($14,600 for single filers and $29,200 for married filing jointly in 2024), which means a single filer earning $75,000 would only pay 2.5% on approximately $60,400 of taxable income, resulting in about $1,510 in state income tax.

Arizona allows several subtractions from income, including up to $2,500 in government pension income, all Social Security benefits, and military retirement pay. The state also does not tax income earned on tribal lands by enrolled members of federally recognized tribes. These provisions, combined with the low flat rate, make Arizona a particularly attractive state for retirees and military veterans.

Arizona Sales Tax (Transaction Privilege Tax)

Arizona technically does not have a traditional "sales tax." Instead, it levies a Transaction Privilege Tax (TPT) at a state rate of 5.6%. The distinction matters: the TPT is a tax on the vendor for the privilege of conducting business in Arizona, rather than a tax on the consumer's purchase. In practice, however, the tax is passed on to consumers and functions similarly to a sales tax.

Cities and counties add their own TPT rates, pushing the average combined rate to approximately 8.40%. Some areas have combined rates exceeding 10%. Phoenix has a city rate of about 2.3%, while Scottsdale charges about 1.75%. Groceries are exempt from state TPT but may be subject to some city-level taxes. Most services are not subject to TPT, which is a significant difference from many other states. Arizona holds an annual back-to-school sales tax holiday in August.

Arizona Property Tax

Arizona's effective property tax rate is approximately 0.62%, well below the national average of about 1.1%. Property taxes are administered at the county level, with Maricopa County (Phoenix metro) and Pima County (Tucson) having some of the largest tax bases. Residential property is assessed at 10% of its Limited Property Value, which is restricted from increasing more than 5% per year.

Arizona offers a property tax credit for homeowners that limits the increase in primary property tax for owner-occupied residences. Senior citizens (65 and older) with limited income can qualify for a property tax freeze that prevents their taxes from increasing. Disabled veterans may be eligible for a property tax exemption on the first $3,000 of assessed value. These protections make Arizona attractive for long-term homeowners, particularly retirees on fixed incomes.

Arizona's Tax Reform Journey

Arizona's path to a 2.5% flat tax was contentious. In 2020, voters approved Proposition 208, which would have imposed a 3.5% surcharge on individual income over $250,000 (single) or $500,000 (joint), effectively creating a top rate of 8%. The Arizona Supreme Court struck down Proposition 208 in 2023, ruling it violated a constitutional limit on education spending. Meanwhile, the legislature passed the flat tax in 2021, which phased in as revenue targets were met. The flat rate took full effect in 2023, well ahead of the original 2024 target. This has positioned Arizona as one of the most competitive states for income taxes in the Sun Belt region.

Arizona Retirement Tax Benefits

Arizona is exceptionally retirement-friendly from a tax perspective. Social Security income is fully exempt from state tax. Up to $2,500 of income from federal, state, or local government pensions can be subtracted from taxable income. Military retirement pay is entirely exempt. The 2.5% flat rate on remaining taxable income is very competitive. When combined with low property taxes and no estate tax, Arizona ranks as one of the best states for retirees seeking to minimize their tax burden while enjoying a warm climate.

Arizona vs. Neighboring States

California — California's graduated income tax tops out at 13.3%, making Arizona's 2.5% flat rate drastically lower. California also has higher sales tax (8.68% avg) and higher property tax (0.71%). Arizona is significantly more tax-friendly across all categories.
Nevada — Nevada has no income tax, beating Arizona on that front. Nevada's sales tax (8.24% avg) is similar to Arizona. Property tax is lower at 0.53%. Nevada wins on income tax but Arizona is competitive overall, especially for moderate earners.
New Mexico — New Mexico has graduated income tax rates up to 5.9%, significantly higher than Arizona's 2.5%. Sales tax is lower (7.58% avg) and property tax is lower (0.67%). Arizona is better for income tax; New Mexico is better for sales tax.
Utah — Utah has a flat 4.65% income tax, nearly double Arizona's rate. Utah's sales tax (7.19% avg) is lower, and property tax (0.58%) is comparable. Arizona has a clear advantage on income tax.
Colorado — Colorado's flat 4.4% rate is significantly higher than Arizona's 2.5%. Colorado has lower sales tax (7.79% avg) but comparable property tax (0.49%). Arizona wins on income tax; Colorado is competitive on consumption taxes.

Frequently Asked Questions

What is Arizona's income tax rate in 2026?

Arizona has a flat income tax rate of 2.5% as of 2023. This replaced the previous graduated system that had rates ranging from 2.55% to 4.5%. The flat rate applies to all taxable income regardless of filing status, making Arizona one of the lowest flat-tax states in the nation.

What is Arizona's sales tax rate?

Arizona's state transaction privilege tax (TPT) rate is 5.6%. When combined with county and city taxes, the average combined rate is approximately 8.40%. Arizona's TPT technically taxes the vendor, not the consumer, though the cost is passed on. Groceries are generally exempt from the state rate.

Does Arizona tax Social Security benefits?

No, Arizona does not tax Social Security benefits. Additionally, Arizona provides a subtraction for up to $2,500 of certain government pension income. Military retirement pay is also fully exempt from Arizona income tax.

What is Arizona's property tax rate?

Arizona's effective property tax rate is approximately 0.62%, below the national average. Property taxes are based on assessed value, typically 10% of full cash value for residential property. Arizona limits annual increases in assessed value and offers exemptions for seniors and disabled veterans.

How did Arizona's flat tax change affect taxpayers?

The shift to a flat 2.5% rate benefited most taxpayers, particularly higher earners who previously paid up to 4.5%. A taxpayer earning $100,000 under the old system paid roughly $3,400 in state tax, compared to about $2,500 under the flat rate. This was funded by stronger-than-expected state revenue.