What Mandatory Payroll Deductions Are Required for Arizona Employers 

Handling payroll extends far beyond simply issuing paychecks—it also involves staying up-to-date with both federal and state regulations, particularly regarding mandatory payroll deductions and other compliance requirements. For employers in Arizona, understanding which deductions are legally required is crucial for staying compliant and avoiding costly fines. This article breaks down the required deductions every Arizona employer needs to withhold from employee paychecks, so you can stay compliant and run payroll with confidence. 

What Are Mandatory Payroll Deductions? 

Mandatory payroll deductions are amounts that employers are legally required to withhold from an employee’s wages and remit to the appropriate government agencies. These deductions fund programs such as income taxes, Social Security, and other benefits mandated by law. 

In Arizona, employers must comply with both federal and state requirements when processing payroll. Let’s take a closer look at each category. 

1. Federal Payroll Deductions (Required Nationwide) 

These deductions apply to all employers in the United States, including those in Arizona: 

a. Federal Income Tax 

• Employers must withhold federal income tax based on IRS tax tables and information provided by employees on their Form W-4. 
• The amount varies depending on wages, filing status, and the number of withholding allowances. 

b. FICA Taxes (Social Security and Medicare) 

• Social Security Tax: 6.2% of wages up to the annual limit ($176,100 for 2025). 
• Medicare Tax: 1.45% of all wages (no wage limit). 
• Additional Medicare Tax: An extra 0.9% applies to employees earning over $200,000 annually. 
• Employers are required to match the employee portion of FICA taxes. 

c. Federal Unemployment Tax (FUTA) 

• Employers must pay FUTA tax (not employees), and they do not withhold it from employee wages.
• Employers typically pay 6.0% on the first $7,000 of wages per employee, but credits for state unemployment contributions may offset this rate.

2. Arizona State Payroll Deductions 

Arizona imposes its state-level withholding requirements in addition to the federal ones. 

a. Arizona State Income Tax 

• Arizona requires employers to withhold state income tax from employee wages. 
• Employees complete Arizona Form A-4, selecting a withholding percentage (ranging from 0.0% to 5.1%) based on their income and preferences. 
• If no form is submitted, employers must withhold at a default rate of 2.0%. 

b. Arizona Paid Sick Time (PST) Contributions 

• Under the Fair Wages and Healthy Families Act, employees accrue earned paid sick time based on hours worked. 
• Although this is not a deduction from wages, employers must accurately track and report it. 
• Most employers provide 1 hour of paid sick time for every 30 hours employees work, with usage caps depending on company size.

3. Other Legally Mandated Withholdings (Situational) 

In some instances, Arizona law requires employers to process additional deductions.

a. Wage Garnishments 

• These are court-ordered deductions for debts such as unpaid child support, tax levies, or creditor judgments. 
• Legal orders require employers to comply and may also need them to withhold a portion of an employee’s wages until the debt is paid.
• Arizona follows federal garnishment limits, typically capping the amount at 25% of disposable income or the amount by which weekly income exceeds 30 times the federal minimum wage per hour. 

b. Child Support Withholding 

• Arizona’s Division of Child Support Services (DCSS) may issue income withholding orders. 
• Employers must withhold the amount ordered and forward it to the state’s child support payment center. 
• Failure to comply can result in penalties for the employer. 

Arizona Payroll Compliance Tips for Employers 

To stay compliant with Arizona’s payroll laws, employers should: 

• Use accurate payroll software or services to automate tax calculations and deductions. 
• Keep current with IRS and Arizona Department of Revenue tax tables and rates. 
• Collect and file the appropriate tax forms (W-4, A-4) for every employee. 
• Maintain clear documentation for all voluntary or mandatory payroll deductions.
• Stay informed about employment law changes at both the state and federal levels. 

Penalties for Non-Compliance 

Failing to withhold or remit mandatory payroll deductions and taxes can lead to serious consequences, including: 

• Fines and interest charges 
• Legal action or audits from tax authorities 
• Personal liability for business owners in some cases (especially for unpaid federal taxes) 

Proper record-keeping, timely payments, and up-to-date knowledge are your best defenses against penalties. 

Conclusion 

Understanding mandatory payroll deductions is key to running a compliant and efficient business in Arizona. From federal income and FICA taxes to Arizona state withholding and garnishments, employers have several obligations to meet when issuing paychecks. Staying informed and working with trusted payroll providers or advisors can help ensure you meet these responsibilities while keeping your employees and your business protected. 

Need Help Managing Payroll in Arizona? 

A Through Z Payroll makes it easy to stay compliant with all federal and state payroll regulations. From accurate tax withholding to secure paycheck delivery, our team ensures your business meets every legal requirement. Contact us today for a free consultation and simplify your payroll process!