How to File Arizona Form 140PY for Partial-Year Residents

Arizona Form 140PY is used by individuals who were partial-year residents of Arizona to report income and determine state tax liability. This form ensures that only income earned while a resident, along with any Arizona-sourced income from non-residency periods, is properly taxed. Filing correctly prevents overpayment and ensures compliance with state tax laws.

Determining Partial-Year Residency

Arizona considers someone a partial-year resident if they moved into or out of the state during the tax year with the intent to establish or abandon residency. Residency is determined by domicile, time spent in the state, and ties maintained, such as property ownership, voter registration, and driver’s license status. Partial-year filers report only the income earned while living in Arizona and any Arizona-sourced income received while living elsewhere.

Domicile is the place an individual considers their permanent home and intends to return to after temporary absences. If someone moves to Arizona but keeps a home in another state and regularly returns there, they may not be considered an Arizona resident. Conversely, leaving Arizona without establishing a new domicile elsewhere could still result in being classified as a resident for tax purposes.

Unlike some states, Arizona does not impose a strict day count for residency. However, extended stays combined with other residency indicators can lead to classification as a resident. For example, if someone relocates to Arizona in June but keeps an out-of-state driver’s license and home, they may still be considered a non-resident for part of the year.

Filing Prerequisites

Before completing Form 140PY, taxpayers must gather necessary documents, including a valid Social Security number or Individual Taxpayer Identification Number. The Arizona Department of Revenue (ADOR) requires this for processing returns. A copy of the federal tax return—typically Form 1040—is also needed, as many figures on the state return correspond to federal income calculations.

Taxpayers must determine the exact dates they lived in Arizona, as this information is required on Form 140PY. Documents such as lease agreements, utility bills, or employment contracts can help substantiate residency dates if questioned. They must also verify whether Arizona tax was withheld from income sources, as state withholding amounts must be reported and can affect any refund or balance due.

Estimated tax payments should also be considered. Arizona requires estimated payments if a taxpayer expects to owe at least $1,000 in state tax after withholding and credits. If payments were made, they should be documented on Form 140PY to avoid underpayment penalties. Additionally, those who received a federal extension must request a separate Arizona extension using Form 204, as the state does not automatically grant one based on a federal request.

Allocating Income

Partial-year residents must allocate income based on earnings received while living in Arizona and income sourced from Arizona during non-residency periods. The state taxes only the portion of income attributable to Arizona. This applies to wages, business income, rental earnings, and capital gains.

For wages, allocation depends on the period of employment within Arizona. If a taxpayer worked for the same employer before and after relocating, their W-2 may not differentiate between earnings in each state. In such cases, taxpayers must manually calculate Arizona wages using pay stubs or employer-provided work location records. For example, if a person earned $80,000 annually and lived in Arizona for six months, their Arizona wages would generally be $40,000 unless specific circumstances dictate otherwise.

Self-employed individuals must allocate earnings based on where services were performed. If a consultant worked remotely for out-of-state clients while living in Arizona, those earnings are considered Arizona income. Conversely, if work was conducted entirely outside the state, it remains non-taxable to Arizona. Business owners should maintain detailed invoices and records to substantiate their income allocation.

Investment income, such as interest and dividends, is typically sourced to the taxpayer’s state of residence at the time it was received. If a taxpayer moved to Arizona in July, interest earned before that date would not be taxable by Arizona, but any accrued afterward would be. Capital gains follow a similar rule—if stocks were sold while the taxpayer was an Arizona resident, the gain must be reported, regardless of where the brokerage account is located.

Rental income from Arizona properties remains taxable to the state regardless of residency status. If a taxpayer owns rental property in Arizona but moved out of state, they must still report rental earnings on Form 140PY. However, expenses such as mortgage interest, property taxes, and depreciation can be deducted proportionally. For rental properties owned in other states, income is only reportable if received while the taxpayer was an Arizona resident.

Deductions and Credits

Arizona allows partial-year residents to claim deductions and credits, but these must be prorated based on the time spent in the state and the portion of income subject to Arizona tax. The standard deduction for 2023 is $13,850 for single filers and $27,700 for joint filers. Those choosing to itemize must allocate deductions based on their Arizona income ratio, meaning expenses like mortgage interest or medical costs can only be deducted in proportion to the percentage of total income taxable by Arizona.

Tax credits can reduce liability, with some being refundable and others non-refundable. The Family Tax Credit provides relief to lower-income households but is only available if income falls below set thresholds. The Excise Tax Credit, aimed at offsetting state sales taxes, may also apply, though prorated for partial-year filers. Contributions to Arizona’s certified charitable organizations, school tuition organizations, and public schools offer dollar-for-dollar tax credits, but eligibility depends on income earned while a resident.

Penalties and Submission

Filing Form 140PY accurately and on time is necessary to avoid penalties and interest charges. The state’s filing deadline aligns with the federal tax deadline, typically April 15, unless it falls on a weekend or holiday, in which case it shifts to the next business day. If additional time is needed, taxpayers can request an extension using Form 204, but this only extends the filing deadline—not the payment due date. Any unpaid tax after April 15 accrues interest at the federal short-term rate plus 3%, compounded annually.

Late filing and underpayment penalties can be significant. Arizona imposes a late filing penalty of 4.5% per month, up to a maximum of 25% of the unpaid tax. A separate late payment penalty of 0.5% per month applies, also capped at 25%. If both penalties apply, the total can reach 50% of the outstanding balance. Additionally, underpayment of estimated tax may trigger a penalty unless the taxpayer paid at least 90% of the current year’s tax liability or 100% of the prior year’s liability. To avoid these charges, taxpayers should ensure full payment by the original due date, even if they file later.

Returns can be submitted electronically through Arizona’s e-file system, which expedites processing and reduces errors. Paper filers must mail Form 140PY to the Arizona Department of Revenue, with separate addresses depending on whether a payment is included. Taxpayers expecting a refund should allow up to 12 weeks for processing if filing by mail, while e-filed refunds typically take less time. If a balance is due, payments can be made online, by check, or through automatic withdrawal. In cases of financial hardship, Arizona offers payment plans, but interest and penalties continue to accrue until the full amount is paid.