How to Handle Arizona Quarterly Tax Payments

Arizona’s tax system is pay-as-you-go, requiring individuals to pay income tax as it is earned. While employer withholding handles this for many, income not subject to withholding requires direct payments to the Arizona Department of Revenue. These payments apply to earnings from self-employment, small businesses, investments, or rental properties. These periodic submissions, known as quarterly estimated tax payments, ensure that taxpayers meet their annual tax obligations incrementally.

Determining Your Requirement to Pay

The obligation to pay quarterly estimated taxes in Arizona is triggered if you anticipate owing $1,000 or more in state income tax for the year after accounting for all withholding and tax credits. This rule applies to income sources that do not have taxes automatically withheld, such as profits from freelance work, gig economy jobs, sole proprietorships, and partnerships. This requirement also extends to individuals with significant non-wage income, such as interest, dividends, capital gains, or income from rental properties. For full-year residents, your Arizona gross income is your federal adjusted gross income.

Calculating Your Estimated Tax Payments

To determine the amount of your quarterly payments, you must project your total tax liability for the year and divide it into four equal installments. The first approach involves estimating your total Arizona adjusted gross income, subtracting eligible deductions, and applying tax credits to arrive at your expected tax. The Arizona Form AZ-1040ES, “Estimated Tax for Individuals,” includes a worksheet for this calculation.

A more straightforward alternative is the “safe harbor” rule, which protects you from underpayment penalties. Under this method, your total required annual payment is 100% of the total tax shown on your previous year’s Arizona income tax return. This threshold increases to 110% if your Arizona adjusted gross income in the prior year exceeded $150,000, or $75,000 for those married filing separately.

Payment Due Dates and Submission Methods

Payments are due in four installments throughout the year. The deadlines are:

• April 15
• June 15
• September 15
• January 15 of the following year

If any of these dates fall on a weekend or a holiday, the deadline is extended to the next business day. Each payment covers a specific income-earning period.

The Arizona Department of Revenue offers two primary methods for submitting your estimated tax payments. The recommended method is to pay electronically through the state’s official portal, AZTaxes.gov. This online system allows you to make a direct payment from a bank account and provides immediate confirmation. When paying online, you select the “140ES: Estimate Payments” option, and you do not need to mail in a paper form.

Alternatively, you can pay by mail using a check or money order. If you choose this option, you must complete the appropriate payment voucher from Form AZ-1040ES for the specific quarter you are paying. The check should be made payable to the “Arizona Department of Revenue” and mailed along with a separate voucher for each quarterly payment.

Understanding Underpayment Penalties

Failing to pay enough tax throughout the year can result in an underpayment penalty. Arizona may assess a penalty if your total payments for the year are less than 90% of your current year’s tax liability or fall short of the safe harbor rule based on your prior year’s tax liability.

The penalty is not a flat fee but is calculated based on the amount of the underpayment and the length of time the amount remained unpaid, functioning similarly to an interest charge. To determine the exact penalty amount, taxpayers use Arizona Form AZ-221, “Underpayment of Estimated Tax by Individuals.”