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Taxes in Arizona
Arizona offers low income taxes, no estate or inheritance taxes, and partial retirement income exemptions, helping offset higher sales taxes.
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At a glance:
- Arizona offers a low flat income tax rate and no estate or inheritance taxes, making it relatively tax-friendly for retirees.
- The state exempts Social Security benefits and provides partial exclusions for retirement income, along with property tax relief programs for eligible seniors.
- While property taxes are moderate, higher-than-average sales taxes help balance the overall tax burden.
Arizona residents enjoy low income tax rates and no estate or inheritance tax, either. These exemptions help offset higher-than-average state and local sales taxes. Below, we explain various Arizona state taxes affecting retirement income, such as sales tax, inheritance tax, and property taxes.
For information regarding taxes in other states, see Retirement Taxes by State.
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Arizona Tax Rates
| State Sales Tax | 5.6% |
| Avg State/Local Sales Tax | 8.38% |
| Gas Tax | $0.19 per gallon |
| Diesel Tax | $0.19 per gallon |
| Cigarette Tax | $2.00 per pack |
| Income Tax | 2.5% |
| Effective Tax Rate | 2.55% |
| Property Tax | 0.45% |
| Social Security Tax | None |
| Medical/Dental Deduction | None |
| Federal Income Tax Deduction | None |
| Retirement Tax | Partial |
Arizona Tax Rates Explained
Arizona Sales Tax
Arizona levies a 5.6% state tax. Local rates tack on an additional 2.8% on average. The sales tax in Arizona is commonly called the Transaction Privilege Tax (TPT), but this is actually a tax levied on vendors.
Groceries and prescription drugs are state tax-exempt, though some cities in Arizona tax groceries from 1.5% to 4%. Arizona’s Vehicle License Tax (VLT) can add up to several hundred dollars per year.
Arizona Income Tax
Arizona has a flat 2.5% individual income tax rate, which is the lowest in the country. The state also has a flat corporate income tax rate of 4.9%.
Arizona Property Taxes
Individual counties in Arizona assess property and bill for taxes. The average effective property tax rate is 0.72%, for a tax of $1,476 on a $205,000 home.
Homeowners aged 65 or older with a total income of $46,416 or less are eligible for the Senior Property Valuation Protection Option. This program is also known as a tax freeze because the property tax does not increase. This program is also available to multiple owners of a single property with a combined income of $58,020 or less.
Arizona homeowners who are at least 70 years old and do not receive more than $10,000 of annual taxable income defer their property taxes. To qualify, seniors must have lived in their primary residence for at least six years or have been Arizona residents for 10 or more years. Deferred taxes must be paid upon the property owner’s death.
Visit the Arizona Department of Revenue for information about property tax relief for seniors.
Arizona Retirement Taxes
Social Security and Railroad Retirement benefits are exempt. Up to $2,500 of retirement income from federal, state and local government plans is tax-exempt. Medical and dental deductions are taxed at the federal amount. Residents may itemize deductions on state income tax returns even if taking the standard deduction on the federal return.
For information on veteran services, visit the Arizona Department of Veterans Services.
Arizona Inheritance and Estate Taxes
There is no inheritance or estate tax in Arizona.