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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
income tax; exemption; minors
Purpose
Exempts an individual who is under 18 years old and whose Arizona gross income is $50,000 or less from state individual income tax.
Background
Individual income tax is levied on Arizona residents’ taxable income. The tax base begins with Arizona gross income, which is equivalent to the taxpayer's federal adjusted gross income. Statute authorizes various amounts to be added or subtracted when computing an individual's Arizona adjusted gross income which is further reduced by standard or itemized deductions to arrive at Arizona taxable income. A taxpayer may elect to take a standard deduction in lieu of all itemized deductions (A.R.S. § 43-1022).
A person who can be claimed as a dependent may be required to file an income tax return depending on the person's earned, unearned and gross income. If a dependent child must file an income tax return but cannot due to age or any other reason, a parent, guardian or other legally responsible person must file the return for the child. For TY 2024, a dependent who is a qualifying child must file a return if the child's: 1) unearned income was more than $1,300; 2) earned income was more than $14,600; or 3) gross income was more than the larger of $1,300 or the amount of the child's earned income, up to $14,150, plus $450 (IRS).
The Joint Legislative Budget Committee fiscal note estimates that H.B. 2601 would annually reduce state General Fund revenue by $9 million beginning in FY 2027. Due to data constraints regarding workers under 18 years old, the estimate is uncertain and should be interpreted with caution (JLBC fiscal note).
Provisions
1. Exempts an individual who is under 18 years old and whose Arizona gross income is $50,000 or less for the taxable year from state individual income tax, with respect to that taxable year and regardless of the source or nature of the income.
2. Requires the Arizona Department of Revenue to establish a process for verifying eligibility for the income tax exemption for minors.
3. Excludes the first $50,000 of wages paid to an employee who is under 18 years old from the requirement for an employer to withhold state income tax.
4. Applies the income tax exemption for minors to taxable years beginning January 1, 2026.
5. Makes technical changes.
6. Becomes effective on the general effective date.
House Action
WM 2/12/25 DP 5-4-0-0
3rd Read 2/25/25 45-15-0
Prepared by Senate Research
March 5, 2025
MG/ci