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What is Arizona's income tax rate?

Arizona has a flat 2.5% income tax rate effective 2023, down from a prior progressive structure topping at 4.5%. Arizona allows a standard deduction that approximates the federal amount. The 2.5% rate makes Arizona one of the most income-tax-competitive states with a personal income tax — only North Dakota (2.5%), Indiana (3.05%), and Pennsylvania (3.07%) are comparable or lower.

Does Arizona tax Social Security?

No — Arizona fully exempts Social Security benefits from state income tax. Arizona also exempts up to $2,500 of federal civil service pensions and up to $3,500 of military pension income. Most other retirement income (IRA, 401k, private pensions) is taxable at the 2.5% rate.

What happened to Arizona's Proposition 208 (the education surcharge)?

Proposition 208 (2020) would have added a 3.5% surcharge on income above $250,000 for individuals. The Arizona Supreme Court struck it down in 2021 as unconstitutional (violating spending limits). So Arizona's flat 2.5% remains without high-income surcharges, unlike Massachusetts's 4% millionaires surtax.

How does Arizona's 2.5% rate compare nationally?

Among states with a broad-based income tax, 2.5% is near the bottom: only Indiana (3.05%), Pennsylvania (3.07%), Michigan (4.25%), and a few others are in a similar range. Eight states have no income tax at all (TX, FL, WA, NV, WY, AK, SD, TN). AZ's 2.5% is dramatically lower than CA (1–13.3%), NY (4–10.9%), and NJ (1.4–10.75%).