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ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
income tax withholding; retirement distributions
Purpose
Clarifies pension, annuity and retirement account payments from which an individual may request the payor to withhold Arizona income tax.
Background
An individual who receives regularly scheduled payments from a pension or annuity that are included in the individual's Arizona gross income may elect to have Arizona income tax withheld from those payments. Eligible, regularly scheduled payments include payments received from: 1) pensions and annuities; 2) retired or retainer pay for service in the U.S. military or naval forces; 3) the U.S. civil service retirement system from the Civil Service Retirement and Disability Fund; and 4) traditional individual retirement accounts. To request a payor to withhold Arizona income tax from an eligible payment, an individual must complete a form prescribed by the Arizona Department of Revenue (ADOR) and choose a withholding rate. The individual may terminate the request by submitting a written statement of termination to the payor. ADOR prescribes withholding percentages which are currently between 0.5 percent and 3.5 percent (A.R.S. §§ 43-401 and 43-404).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Specifies that distributions from a retirement account are eligible for Arizona income tax withholding to the extent that the distributed amount is includable in the individual's Arizona gross income.
2. Requires a distribution from a retirement account to be treated as a payment of wages for income tax purposes, if a request that the retirement account be subject to withholding is in effect at the time of payment.
3. Allows a request to initiate, adjust or terminate withholding from a pension, annuity or retirement account to be executed in writing by paper or electronic means on an ADOR-prescribed form.
4. Defines pension and retirement account and modifies the definition of annuity.
5. Makes technical and conforming changes.
6. Becomes effective on the general effective date.
Prepared by Senate Research
February 1, 2024
MG/cs