A.R.S. tit. 43 ch. 4 — Arizona Revised Statutes Title 43 Chapter 4 — Withholding

43-401. Withholding tax; rates; election by employee A. Except as provided by subsections B and H of this section, every employer at the time of the payment of wages, salary, bonus or other emolument to any employee whose compensation is for services performed within this state shall deduct and retain from the compensation an amount prescribed by tables adopted by the department. B. An employer may voluntarily elect to not withhold tax during December by notifying: 1. The department on a form prescribed by the department. 2. The employer's employees in writing in a manner prescribed by the department. C. If the amount collected and payable by the employer to the department in each of the preceding four calendar quarters did not exceed an average of one thousand five hundred dollars, the amount collected shall be paid to the department on or before April 30, July 31, October 31 and January 31 for the preceding calendar quarter. If the amount exceeded one thousand five hundred dollars in each of the preceding four calendar quarters, the employer shall pay to the department the amount the employer deducts and retains pursuant to this section at the same time as the employer is required to make deposits of federal tax pursuant to section 6302 of the internal revenue code. On or before April 30, July 31, October 31 and January 31 each year, the employer shall reconcile the amounts payable during the preceding calendar quarter in a manner prescribed by the department, except that if the full amount collected and payable is paid timely to the department under this subsection, the employer may reconcile the amounts on or before May 10, August 10, November 10 and February 10 each year. The department by rule may allow and determine which employers qualify for annual payments of withholding taxes, with an annual report by the employer pursuant to section 43-412, subsection B, if the qualifying employer has established sufficient payment history to indicate that the employer is current and in good standing pursuant to standards established by rule. For any business that has not had a withholding certificate for the four preceding consecutive quarters, the quarterly average shall be computed in a manner prescribed by the department. D. If an employer fails to make a timely monthly payment because prior to that reporting period it reported on a quarterly basis instead of on a monthly basis, the department shall notify the employer that it is out of compliance with this section. Notwithstanding section 42-1125, the department shall not assess a penalty against an employer for failing to make a timely monthly payment if the employer had filed and remitted all taxes due on a quarterly basis and brings all filings and payments into current compliance within thirty days after being notified by the department. E. Each employee shall elect the amount authorized by subsection A of this section to be withheld for application toward the employee's state income tax liability. The election provided under this subsection shall be exercised by each employee, in writing on a form prescribed by the department. The election shall be made within five days of employment. Each employer shall notify the employees of the election made available under this subsection and shall have election forms available at all times. Each form shall be completed in triplicate, with one copy each for the department, the employer and the employee. The employer shall file a copy of each completed form with the department. Any employee failing to complete an election form as prescribed shall be deemed to have elected the withholding percentage prescribed by the department. F. Before July 1 of each year, each employer who chooses to not withhold tax pursuant to subsection B of this section shall notify each employee that: 1. State income taxes will not be withheld from compensation in December. 2. The employee may elect to change the rate of withholding tax prescribed by this section to compensate for the resulting change in annual withholdings from the employee's compensation. G. At an employee's written request, the employer may agree to reduce the amount withheld under this section by the amount of credit that the employee represents to the employer that the employee will qualify for and be entitled to under sections 43-1088, 43-1089, 43-1089.01 and 43-1089.03. The employee's request must include the name and address of the qualifying charitable organization, qualified school tuition organization or public school. Within thirty days after agreeing to the employee's request, the employer shall reduce the withholding amount by the amount of the credit, but not below zero, prorated for the number of pay periods remaining in the employee's taxable year after the employee makes the request. If an employer agrees to reduce the withholding amount pursuant to this subsection, the following apply: 1. Within fifteen days after the end of each calendar quarter, the employer must pay the entire amount of the reduction in withholding tax for that quarter to the designated charitable organization, school tuition organization or public school. These payments are considered to be on the employee's behalf, and not the employer's, for the purposes of qualifying for the income tax credits under sections 43-1088, 43-1089, 43-1089.01 and 43-1089.03. 2. The employee is responsible and accountable for the accuracy and the amount of reduction in withholding tax and the payments to the charitable organization, school tuition organization or public school. 3. The employer is responsible and accountable to the charitable organization, school tuition organization or public school, to the employee and to the department for actually making the required payments. 4. Within thirty days after the end of each calendar year, or within fifteen days after the termination of employment, the employer must furnish to each electing employee a statement of the amount withheld and paid on behalf of the employee during that year. H. An employer shall not withhold tax on the wages of the employer's nonresident employees who are in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130. 43-402. Definition of "employer" For the purposes of this article, "employer" means the person for whom an individual performs or performed any service of whatever nature, as the employee of such person including any officer or department of the state, any political subdivision or agency of the state, any city organized under a charter or any political body not a subdivision or agency of the state, except that if the person for whom the individual performs or performed the services does not have control of the payment of the wages for such services, "employer" means the person having control of the payment of such wages. 43-403. Employment excluded from withholding A. No amount shall be deducted or retained from: 1. Wages or salary paid to an employee of a common carrier when such employee is a nonresident of this state as defined in section 43-104 and regularly performs services both within and without this state. 2. Wages paid for domestic service in a private home. 3. Wages paid for casual labor not in the course of the employer's trade or business. 4. Wages paid to part-time or seasonal employees whose services to the employer consist solely of labor in connection with the planting, cultivating, harvesting or field packing of seasonal agricultural crops, except such employees whose principal duties are operating any mechanically-driven device in such operations. 5. Wages or salary paid to a nonresident of this state who is: (a) An employee of an individual, fiduciary, partnership, corporation or limited liability company having property, payroll and sales in this state, or of a related entity having more than fifty per cent direct or indirect common ownership. (b) Physically present in this state for less than sixty days in a calendar year for the purpose of performing a service that will benefit the employer or the related entity. For purposes of determining the number of days of service in this state, days spent in the following activities are not included: (i) In transit. (ii) Engaging in personal activities. (iii) Participating in training or professional development activities or attending meetings that are not directly connected to the Arizona operations of the employer or the related entity. 6. Wages or salary paid to a nonresident who is in this state on a temporary basis for the purpose of performing disaster recovery from a declared disaster during a disaster period as defined in section 42-1130. B. In addition to the exemptions from the withholding provisions contained in subsection A of this section, because of the temporary nature of such employment, no amount shall be deducted or retained from wages paid to a nonresident of this state engaged in any phase of motion picture production when, prior to the time of payment of such wages, an application is made by the employer to the department, on forms prescribed by the department, for an exemption from the withholding provisions of this section and the department determines that the nonresident would be allowed a credit under section 43-1096 against all of the taxes upon such wages imposed by this chapter. C. Subsection A, paragraph 5 of this section does not apply to a nonresident employee who is in this state solely for athletic or entertainment purposes. D. Notwithstanding subsection A, paragraphs 4 and 5 of this section: 1. A nonresident employee under subsection A, paragraph 5 of this section or a part-time or seasonal employee under subsection A, paragraph 4 of this section may elect to have withholding deducted in the manner prescribed by section 43-401, subsection E and the employer shall withhold tax pursuant to that election. 2. The employer may elect to withhold tax from the nonresident employee before the sixty-day limitation has elapsed. 43-404. Extension of withholding to pensions, annuities, retirement accounts; definitions A. For the purposes of this title, a payment from a pension or annuity or a distribution from a retirement account to an individual, if at the time the payment or distribution is made a request by the individual that such pension, annuity, retirement account be subject to withholding under this section is in effect, shall be treated as if it were a payment of wages by an employer to an employee for a payroll period. B. A request that payment from a pension or annuity or distribution from a retirement account be subject to withholding under this section shall be made by the payee in writing to the person that is making the pension or annuity payments or retirement account distributions and shall be accompanied by a form, prescribed by the department, executed in accordance with section 43-401, subsection E. Such a request may be denied or terminated by furnishing to the person making the payment or distribution a written statement of denial or termination. C. Distributions from a retirement account are eligible for withholding, but only to the extent that amount is includable in the Arizona gross income of the individual who receives the distribution. D. A request to initiate, adjust or terminate withholding under this section may be executed in writing by paper or electronic means on either a paper form prescribed by the department or the form's electronic equivalent. E. For the purposes of this section: 1. "Annuity" means either of the following: (a) An employee annuity authorized under the internal revenue code paid to an individual, but only to the extent that the amount is includable in the Arizona gross income of such individual. (b) Specified income payable at stated intervals to an individual for a fixed or contingent period, often for that individual's life, but only to the extent that the amount is includable in the Arizona gross income of such individual. 2. "Pension" means either of the following: (a) A defined benefit plan authorized under the internal revenue code paid to an individual, but only to the extent that amount is includable in the Arizona gross income for such individual. (b) Periodic, fixed amount retirement payments made by the United States military, the United States civil service or a state or local government or a private employer to former employees and surviving spouses of former employees for prior services performed, but only to the extent that amount is includable in the Arizona gross income of such individuals. 3. "Retirement account" includes: (a) A qualified retirement plan under sections 401, 403 and 457 of the internal revenue code. (b) An individual retirement account under section 408 of the internal revenue code, including a simplified employee pension fund as defined in section 408(k) of the internal revenue code and a simple retirement account as defined in section 408(p) of the internal revenue code. 43-405. Extension of withholding to gambling winnings A. For the purposes of this title, payments of prize winnings that are subject to federal withholding pursuant to section 1441 or section 3402(q) of the internal revenue code by any of the following shall be treated as if they were payments of wages by an employer to employees for a payroll period: 1. The Arizona state lottery commission under title 5, chapter 5.1. 2. A permittee conducting horse or dog racing under title 5, chapter 1. 3. A fantasy sports contest operator under title 5, chapter 10. 4. An event wagering operator under title 5, chapter 11. B. The entities listed in subsection A of this section shall deduct and withhold from each payment of prize winnings made to an individual an amount equal to the highest tax rate prescribed by section 43-1011. 43-406. Extension of withholding to premature withdrawals of state and local government retirement contributions For the purposes of this title and except for eligible rollover distributions transferred to an eligible retirement plan pursuant to section 401(a)(31) of the internal revenue code, amounts withdrawn from the state retirement system, the elected officials' retirement plan or a county or city retirement plan by an employee upon termination of employment prior to retirement shall be treated as if the withdrawn amounts are payment of wages by an employer to an employee and shall be subject to withholding. The amount withheld by the retirement plan or system at the time of withdrawal shall be equal to five per cent of the total amount withdrawn. 43-407. Extension of withholding to unemployment compensation payments A. For the purposes of this title, any payment of unemployment compensation to an individual who has made an election to have state income tax withheld as specified in section 23-792, subsection A, paragraph 4, shall be treated as a payment of wages by an employer to an employee for a payroll period. The amount withheld at the time of payment shall be ten per cent of federal income tax deducted and withheld. B. An election that unemployment compensation payments be subject to withholding under this section shall be made by the payee in writing to the person making unemployment compensation payments and shall be accompanied by a form as prescribed by the department. A request to terminate withholding may be submitted at any time by the payee and shall be in writing to the payor. 43-408. Voluntary withholding on out-of-state wages A. If a resident of this state is employed outside the state, the person may request the employer to withhold taxes pursuant to this article on wages earned for the services performed outside the state. B. If the employee and employer agree to the voluntary withholding of tax, in a manner prescribed by the department, the employee and employer are subject to this chapter as if the employer were required to withhold taxes. 43-409. Job creation withholdings clearing account A. The job creation withholdings clearing account is established consisting of $10,500,000 in each fiscal year. B. On the twentieth day of each month, the state treasurer shall credit the following amounts from the clearing account: 1. To the Arizona commerce authority fund established by section 41-1506, one-twelfth of the annual sum of $10,000,000 in each fiscal year. 2. To the Arizona competes fund established by section 41-1545.01, one-twelfth of the annual sum of $500,000 in each fiscal year. 43-411. Employer entitled to address of employee When necessary to make effective the provisions of this chapter, the name and address of the recipient of income shall be furnished upon demand of the person paying the wages. The department shall furnish the person paying the wages with forms to be signed by the person from whom the tax is being withheld. Such forms shall provide for the information the department deems necessary. 43-412. Returns of withholding to be filed with department A. Every employer at the time of filing a reconciliation pursuant to section 43-401, subsection C shall deliver to the department a return in the form prescribed by the department showing the total amount of wages, salaries, bonuses or other emoluments paid to employees, the amount deducted pursuant to this chapter and such other information as the department may require. The employer shall advise the employee of the amount of monies withheld, in accordance with such rules as the department may prescribe, using printed forms furnished by the department for such purposes or, when requested by the employer, on forms approved by the department. B. The employer shall make an annual return for the calendar year to the department on forms provided by it summarizing the total compensation paid and the tax withheld for each employee during the calendar year and shall file the return with the department on or before January 31 of the year following the year for which the report is made. The department may extend the filing deadline on a showing of good cause by the employer. The return required by this section shall contain or be verified by a written declaration that it is made under the penalties of perjury. 43-413. Statement of withholding to employees The employer, within thirty-one days after the end of each calendar year, shall furnish each employee with either a statement of the amount withheld during the previous tax year, showing the gross earnings and the amount of tax withheld or, if the termination of employment is before the end of the year, within fifteen days after the termination of employment, a summary statement showing the total earnings for the tax year and the amount of taxes withheld from compensation. 43-414. Liability for failure to withhold The employer shall be liable to the department for the payment of the tax required to be deducted and withheld under this chapter, and the employee shall not be liable for the amount of any such payment nor shall the employer be liable to any person or any employee for the amount of any such payment. For the purpose of making penalty sections of this title applicable, any amount deducted or required to be deducted and remitted to the department under this chapter shall be considered the tax of the employer and with respect to such amounts he shall be considered as a taxpayer. 43-415. Withholdings as trust fund for state Whenever any employer is required to collect or withhold the tax imposed by this title from any employee and to pay such tax over to the department, the amount of tax so collected or withheld shall be held to be a special fund in trust for this state. The amount of such fund shall be assessed, collected and paid in the same manner and subject to the same provisions, limitations and penalties as are applicable with respect to the taxes from which such fund arose. 43-416. Failure to remit withholding; classification Any employer entrusted with or having in his control any tax required to be collected or withheld and constituting a "special fund in trust for this state" pursuant to section 43-415, who fraudulently appropriates, or secretes with a fraudulent intent to appropriate, to any use or purpose not in the due and lawful execution of the trust, pursuant to this article or any portion is guilty of a class 4 felony. 43-417. Withholding without resort to legal action Any person required to withhold and transmit any amount pursuant to this chapter shall comply with the requirement without resort to any legal or equitable action in a court of law or equity. 43-418. Payroll service company; registration; definitions A. For withholding tax returns due to be filed from and after May 31, 2011, a person shall not act as a payroll service company unless the person is registered with the department under this section. B. A person shall apply to the department electronically for registration as a payroll service company under this subsection and the department shall grant the application if the application indicates that the person will comply with this section. C. A payroll service company registered with the department under this section shall: 1. Be authorized in writing pursuant to section 42-2003 by each client to act on behalf of the client with respect to this state's withholding tax. 2. Keep a client's monies held for payment of state withholding taxes or other obligations in an account separate from the payroll service company's own monies. 3. Make payments electronically and file returns electronically with the department in compliance with the department's requirements for electronic payments and electronic filing. 4. Electronically provide to the department a client list and electronically update the client list at least monthly, by the first of every month. The client list shall include at least the name, address, tax identification number and federal deposit frequency of each client. The address listed for the client must be the client's actual street or post office box address and not the payroll service company's address. 5. Timely file all returns and timely make all withholding tax payments required under its contracts with its clients. 6. On request, provide to the department, within the time specified in the request, a copy of any contract with a client. 7. Comply with all other requirements of this section or rules adopted pursuant to this section. D. A payroll service company may terminate its registration by written notice to the department. E. For the purposes of this section: 1. "Client" means another employer for whom a payroll service company provides payroll services for a fee. 2. "Payroll service company" means a person who has custody or control over a client's monies for the purpose of paying the withheld taxes and filing returns of a client with the department. 3. "Person" means an individual, fiduciary, partnership, corporation, limited liability company, association or other entity organized under the laws of this state or any other jurisdiction. 43-419. Electronic remittance and filing required by payroll service company; penalty; definitions A. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company remitting amounts due as prescribed in section 43-401, subsection C on behalf of a client shall make all payments electronically. If a payroll service company remits a payment in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per payment, unless it is shown that the failure to pay electronically is due to reasonable cause and not due to wilful neglect. B. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company reconciling amounts payable during the preceding quarter in accordance with section 43-401, subsection C on behalf of a client shall file all required quarterly returns electronically. If a payroll service company files a required quarterly return in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per return, unless it is shown that the failure to file electronically is due to reasonable cause and not due to wilful neglect. C. For withholding tax returns due to be filed from and after May 31, 2011, a payroll service company filing an annual payment return as allowed by rule and in accordance with section 43-401, subsection C on behalf of a client shall file all required annual returns electronically. If a payroll service company files a required annual return in a manner other than electronically, the payroll service company shall pay a penalty in the amount of twenty-five dollars per client, per return, unless it is shown that the failure to file electronically is due to reasonable cause and not due to wilful neglect. D. For the purposes of this section, "client", "payroll service company" and "person" have the same meanings prescribed in section 43-418. 43-431. Amounts withheld considered part payment of tax The amounts deducted from the wages of an employee during any calendar year in accordance with the provisions of this chapter shall be considered to be paid in part payment of the tax on such employee's taxable income for his tax year which begins within such calendar year, and the return made by the employer pursuant to section 43-412 may be accepted by the department as prima facie evidence of the amounts so deducted from his wages. 43-432. Refund for excess withholding A. When the total amount withheld under section 43-401 exceeds the amount of the tax on the employee's entire taxable income as computed under this title, the department shall, after auditing the annual return filed by the employee in accordance with chapter 3 of this title, and without requiring a filing of a refund claim as provided in section 42-1106, subsection A, refund the amount of the excess withheld, subject to setoff for debts pursuant to section 42-1122. Failure of the department to make such refund shall not limit the right of the taxpayer to file a claim for a refund as provided in chapter 6, article 1 of this title. If the excess tax withheld is less than one dollar, no refund shall be made unless specifically requested by the taxpayer at the time such return is filed. In no event shall any excess be allowed as a credit against any tax accruing on a return filed for a year subsequent to the year during which such excess was withheld, the provisions of chapter 6 of this title notwithstanding. B. The department may make separate refunds of withheld taxes upon request by a husband or wife who has filed a joint return, the refund payable to each spouse being proportioned to the gross earnings of each shown by the information returns filed by the employer or otherwise shown to the satisfaction of the department. If a taxpayer entitled to a refund under this subsection dies, the department may certify to the department of administration that the refund be made to the taxpayer's duly appointed executor, administrator or personal representative. 43-433. Remedies for withheld taxes Any taxpayer from whom a tax is collected by withholding under this chapter is entitled to the remedies set forth in chapter 6 of this title. 43-434. Exemption in case of nonresident employees In the case of nonresident employees who are residents of another state and are allowed a tax credit for income taxes paid to their state of residency or domicile under the provisions of section 43-1096, sufficient in amount to offset the tax required by this chapter to be withheld from the wages of an employee, the department may by rules and regulations relieve the employers of such employees from withholding requirements of this chapter with respect to such employees. 43-435. Failure to collect and pay over tax; personal liability Any person required to collect, truthfully account for and pay over any tax imposed by this title who fails to do so is, in addition to other penalties provided by law, personally liable for the total amount of the tax not collected or accounted for and paid over.