Guides an Arizona employer through the full payroll compliance cycle: collecting Form A-4 elections, calculating PIT withholding at 2.5% flat against federal taxable wages, making ADOR deposits on the correct schedule, filing quarterly Form A1-QRT and UC-018, satisfying Proposition 206 earned paid sick time requirements, and closing the year with Form A1-R and W-2 transmittal by January 31.
Confirm the employer is registered with both ADOR (PIT withholding account) and Arizona DES (UI account number) before the first payroll runs. New Arizona employers must register within 20 days of the first payroll under A.R.S. § 23-722(B). Registration through AZTaxes.gov covers ADOR; the DES Tax and Wage System (TWS) covers UI. Verify the correct deposit frequency assigned by ADOR (quarterly, monthly, or next-day) based on projected average quarterly withholding.
Collect a completed Form A-4 from every new hire before or during their first pay period. The A-4 requires the employee to elect a percentage of their federal taxable wages (0.5%, 1.0%, 1.5%, 2.0%, 2.5%, 3.0%, 3.5%, or zero if exempt) — not a dollar amount or allowance count. Employees who do not submit an A-4 default to 2.0% under A.R.S. § 43-401(G). Audit existing employees for stale A-4 forms using the pre-2023 format (0.8%–5.1% options), which are obsolete and must be replaced.
For each pay run, calculate Arizona PIT withholding by multiplying the employee's federal taxable wages (gross wages minus §125 cafeteria plan elections and traditional 401(k) deferrals) by the A-4 elected percentage. Apply the 2.0% default for employees without an A-4 on file. Separately track UI-taxable wages, which include 401(k) deferrals and stop at the $8,000-per-employee annual wage base. Each paystub must display the employee's Proposition 206 earned paid sick time balance, amount accrued in the period, and amount used.
Make Arizona PIT withholding deposits electronically via AZTaxes.gov on the schedule assigned by ADOR — quarterly (no mid-quarter deposits for small employers), monthly (15th of the following month), or next-day (when a single payday triggers $500+ in undeposited liability). File Form A1-QRT by the last day of the month following the quarter end (April 30, July 31, October 31, January 31). Report total Arizona wages (federal taxable wages base), total PIT withheld, deposits already made, and net balance due. File Form UC-018 with DES on the same quarterly schedule, reporting gross wages, excess wages above the $8,000 UI wage base, taxable wages, the employer's experience-rated UI contribution, and the 0.10% Job Training Tax if applicable.
Before year-end W-2 preparation, audit any workers paid as independent contractors (1099-NEC) against Arizona's 7-factor test under A.R.S. §§ 23-902(D) and 23-1601. Workers who fail the test must be reclassified as employees, back-withholding and back-UI-contributions assessed, and W-2s issued rather than 1099-NECs. Confirm that all reclassified or newly classified workers have signed a Declaration of Independent Business Status (DIBS) if being retained as contractors.
Prepare W-2s for all employees by January 31, including Arizona-specific Box 16 (state wages) and Box 17 (state income tax withheld). Box 16 reflects Arizona wages subject to withholding (federal taxable wages base), not gross wages. Reconcile cumulative A1-QRT totals across all four quarters against W-2 Box 17 totals. File Form A1-R (Annual Withholding Reconciliation) with the W-2 file in EFW2 format (with Arizona RS records) via AZTaxes.gov by January 31 — no extensions are available for A1-R. Small employers who qualify may instead file Form A1-APR (Annual Payment Withholding Return) in lieu of quarterly A1-QRTs, also by January 31.
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