Arizona Payroll Compliance
Every rate, wage base, and local override Arizona employers need for 2026 — sourced from AZDOR, DES, and the Industrial Commission of Arizona — including the two cities that set their own wage floor.
Minimum Wage & Hours
Arizona’s minimum wage rose to $15.15/hour on January 1, 2026 — a 3.0% CPI-U adjustment under the Fair Wages and Healthy Families Act. The Industrial Commission of Arizona (ICA) calculates and announces the following year’s rate every September. Arizona does not distinguish minimum wage by employer size.
| Item | 2026 Value | Notes |
|---|---|---|
| Statewide minimum wage | $15.15/hr | +3.0% from $14.70 in 2025 |
| Tipped cash wage | $12.15/hr | Up to $3.00 tip credit; total must reach $15.15 |
| Overtime rule | 40 hrs/week | Federal FLSA; Arizona has no daily overtime rule |
| Earned paid sick time | 40 or 24 hrs/yr | 40 hrs for 15+ employee employers; 24 hrs for smaller employers |
| Final paycheck (involuntary) | 7 working days | Or by the end of the next regular pay period, whichever is sooner |
| Wage theft penalty | Treble damages | Under A.R.S. § 23-355 for bad-faith withholding |
| Record retention | 4 years | Required under Proposition 206 |
Flagstaff & Tucson Local Wage Rules
Two Arizona cities run their own minimum wage ordinances. Flagstaff eliminated its tip credit entirely starting January 1, 2026 — every employee earns the full local rate regardless of tips. Tucson still permits the standard $3.00 tip credit.
| Jurisdiction | 2026 Rate | Notes |
|---|---|---|
| Flagstaff | $18.35/hr | No tip credit; covers anyone working 25+ hrs/year in city limits |
| Tucson | $15.45/hr | $12.45/hr tipped cash wage with $3.00 tip credit |
| Rest of Arizona | $15.15/hr | Statewide rate applies |
State Income Tax Withholding
Arizona has used a flat 2.5% income tax rate since 2023, one of the lowest flat rates in the country. Employees elect their own withholding percentage from a fixed menu of options via Form A-4, rather than the employer calculating a bracket-based amount.
| Item | 2026 Value | Notes |
|---|---|---|
| Flat income tax rate | 2.5% | Same rate at every income level, since 2023 |
| Employee-elected rate | 0.0% – 3.5% | Employee picks a withholding percentage on Form A-4; default 2.0% if no form filed |
| Required certificate | Form A-4 | Arizona-specific; separate from the federal W-4 |
| Local income tax | None | No Arizona city or county imposes one |
| Reciprocity | CA, IN, OR, VA, DC | Residents file Form WEC (Withholding Exemption Certificate) to exempt AZ withholding |
Paid Leave
Arizona has no state disability insurance and no mandatory paid family or medical leave program. It does, however, mandate earned paid sick time under Proposition 206 for every employer regardless of size — a real, functioning benefit even without a full PFML system.
| Item | Status | Notes |
|---|---|---|
| Mandatory PFML program | None | No employer or employee payroll contribution exists |
| State disability insurance | None | No state-run short-term disability program |
| Earned paid sick time | Mandatory | 40 hrs/yr (15+ employees) or 24 hrs/yr (under 15); all employer sizes covered |
| Federal FMLA | Applies | Unpaid, job-protected; 50+ employee threshold |
Unemployment Insurance (SUI)
Arizona’s SUI wage base has held at $8,000 for several years — among the lowest in the country. DES (the Department of Economic Security) assigns new employers a flat 2.0% rate before moving to experience rating.
| Item | 2026 Value | Notes |
|---|---|---|
| SUI taxable wage base | $8,000 | Unchanged in recent years |
| New employer rate | 2.0% | Standard rate for most new employers |
| Experienced employer range | Varies | Assigned by claims history — confirm current range via DES |
| Filing | Quarterly | Via the DES employer portal |
Official Arizona .gov Resources
Verify every figure and register for accounts at the source. These are the agencies Arizona employers work with for payroll.