What payroll taxes do Arizona employers pay?
Arizona employers pay several taxes on top of the wages they pay employees. The employer portion includes federal taxes that apply everywhere plus Arizona-specific unemployment insurance.
On the federal side, you pay a 6.2% Social Security tax match on employee wages up to the annual wage base ($168,600 in 2024). You also pay 1.45% Medicare tax on all wages with no limit. These match what you withhold from employees, so the combined rate is 12.4% for Social Security and 2.9% for Medicare split evenly between employer and employee.
Federal Unemployment Tax (FUTA) is 6.0% on the first $7,000 of each employee’s wages. However, if you pay your Arizona state unemployment taxes on time, you receive a credit of up to 5.4%, bringing the effective FUTA rate down to 0.6% in most cases.
Arizona Unemployment Insurance is the state-level employer tax. New employers typically start at a rate around 2% for most industries, though construction businesses start higher. Your rate adjusts over time based on your experience rating, which reflects your history of unemployment claims. Rates can range from as low as 0.05% to over 14% depending on your claims history. This tax applies to the first $8,000 of each employee’s wages annually.
The good news for Arizona employers is what you don’t have to pay. Arizona has no state disability insurance program like California or New York require. There are no local payroll taxes in Scottsdale, Phoenix, or anywhere else in Arizona. This makes small business bookkeeping for payroll simpler here than in states with multiple layers of local and state requirements.
One important distinction: Arizona state income tax is not an employer-paid tax. You withhold it from employee paychecks and remit it to the state, but it’s the employee’s money, not your expense. The same applies to federal income tax withholding. Your actual employer cost is the taxes listed above.
For a business with a $50,000 annual payroll, expect to pay roughly $4,500 to $5,000 in employer payroll taxes depending on your Arizona UI rate. That breaks down to about 7.65% for Social Security and Medicare plus your UI contributions.
Staying compliant means registering with the Arizona Department of Economic Security for unemployment insurance, making timely tax deposits, and filing quarterly reports. Full-service payroll handles these deposits and filings automatically, which eliminates the risk of missed deadlines and penalties that add up quickly.
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