Ariz. Admin. Code § 15-2B-101

Current through Register Vol. 30, No. 50, December 13, 2024

Section R15-2B-101 - Payment Schedule; Rates; Election by Employee

A. An employer shall determine its Arizona withholding payment schedule for each calendar quarter by calculating the average amount of Arizona income taxes withheld in the 4 preceding calendar quarters. The employer shall calculate this average at the beginning of each calendar quarter by adding the actual amount withheld in each of the 4 preceding calendar quarters and then dividing that sum by 4.

1. If the average amount of Arizona income taxes withheld in the 4 preceding calendar quarters does not exceed $1,500, the employer shall make its Arizona withholding payments on a quarterly basis.

Example:

An employer determines its Arizona withholding payment schedule for the 4th calendar quarter of 1999 as follows:

3rd quarter of 1999 withholding $1,100

2nd quarter of 1999 withholding $1,600

1st quarter of 1999 withholding $1,000

4th quarter of 1998 withholding $1,200

Total withholding $4,900

Divide by 4

Average withholding $1,225

The 4 quarter average of Arizona income taxes withheld does not exceed $1,500. Therefore, the employer shall make its Arizona withholding payments on a quarterly basis.

2. If the average amount of Arizona income taxes withheld in the 4 preceding calendar quarters exceeds $1,500, the employer shall make its Arizona withholding payments at the same time as the employer is required to make its federal withholding deposits.

Example:

An employer determines its Arizona withholding payment schedule for the 3rd calendar quarter of 1999 as follows:

2nd quarter of 1999 withholding $1,800

1st quarter of 1999 withholding $1,400

4th quarter of 1998 withholding $1,900

3rd quarter of 1998 withholding $1,300

Total withholding $6,400

Divide by 4

Average withholding $1,600

The 4 quarter average of Arizona income taxes withheld exceeds $1,500. Therefore, the employer shall make its Arizona withholding payments at the same time as its federal withholding deposits.

B. An employer that purchases an existing business shall determine its Arizona withholding payment schedule for each calendar quarter by calculating the average amount withheld in the 4 preceding calendar quarters as follows:

1. For the 1st quarter of withholding, the employer shall calculate the previous owner's average amount of Arizona income taxes withheld in the 4 preceding calendar quarters.

2. For the 2nd through 4th quarters of withholding, the employer shall calculate the average amount withheld in the 4 preceding calendar quarters by combining its prior quarters of withholding with the previous owner's quarters of withholding.

3. For subsequent quarters of withholding, the employer shall add the amounts it withheld in the 4 preceding calendar quarters and then divide that sum by 4.

C. A newly formed business shall determine its Arizona withholding payment schedule as follows:

1. For the 1st quarter of withholding, the employer shall make its Arizona withholding payments on a quarterly basis.

2. For the 2nd quarter of withholding, the employer shall determine its Arizona withholding payment schedule based on the amount withheld in the 1st quarter of withholding.

3. For the 3rd quarter of withholding, the employer shall determine its Arizona withholding payment schedule by adding the amounts withheld in the 1st and 2nd quarters and dividing by 2.

4. For the 4th quarter of withholding, the employer shall determine its Arizona withholding payment schedule by adding the amounts withheld in the 1st, 2nd, and 3rd quarters and dividing by 3.

5. For subsequent quarters of withholding, the employer shall determine its Arizona withholding payment schedule by adding the amounts withheld in the 4 preceding calendar quarters and dividing by 4.

D. If 2 or more employers consolidate their business activities to form 1 entity, the new employer shall determine its Arizona withholding payment schedule based on the combined withholding of the prior employers for the preceding 4 calendar quarters. Any prior employer with fewer than 4 full quarters of withholding activity shall annualize the amounts withheld and divide by 4. The new employer shall determine its Arizona withholding payment schedule by combining this amount with the quarterly averages of the other prior employers with 4 full quarters of withholding activity.

E. The employer shall complete the quarterly reconciliation required by A.R.S. § 43-401 by filing the quarterly tax return prescribed by the Department.

F. For calendar years beginning after December 31, 1997, an employer may make its Arizona withholding payments on an annual basis if all of the following conditions are met:

1. The employer has established a history of withholding activity by filing the quarterly tax return required by subsection (E) for at least the 4 preceding calendar quarters.

2. The employer's withholding liability was an amount greater than zero for at least 1 of the 4 preceding calendar quarters.

3. The average amount of Arizona income taxes withheld by the employer in the 4 preceding calendar quarters does not exceed $200. The employer will meet this average withholding requirement if the total amount withheld in the 4 preceding calendar quarters is $800 or less.

4. The employer has timely filed the quarterly tax return and has timely made its Arizona withholding payments for at least 3 of the 4 preceding calendar quarters.

5. The employer has filed the quarterly tax return for all preceding calendar quarters and does not have a balance due (tax, penalty, or interest) for any preceding calendar quarter.

6. The employer has filed the annual reconciliation tax return required by A.R.S. § 43-412 for all preceding calendar years and has timely filed the annual reconciliation tax return for the preceding calendar year.

G. An employer that makes its Arizona withholding payments on a annual basis under subsection (F), shall file the annual tax return required by A.R.S. § 43-401 on the form prescribed by the Department. The form shall contain all the information required by A.R.S. § 43-412. The employer shall make its annual Arizona withholding payment by February 28 of the year following the year for which the report was made.

H. An employer that makes its Arizona withholding payments on an annual basis under subsection (F), may continue to make its Arizona withholding payments on an annual basis for the succeeding calendar year if both of the following conditions are met:

1. The average amount of Arizona income taxes withheld by the employer in the 4 preceding calendar quarters does not exceed $200.

Example 1:

An employer determines whether the average amount of Arizona income taxes withheld in the 4 preceding calendar quarters does not exceed $200 as follows:

4th quarter of 1999 withholding $200

3rd quarter of 1999 withholding $200

2nd quarter of 1999 withholding $250

1st quarter of 1999 withholding $150

Total withholding $800

Divide by 4

Average withholding $200

The average amount of Arizona income taxes withheld in the 4 preceding calendar quarters does not exceed $200. Therefore, the employer may make its Arizona withholding payments on an annual basis for the succeeding calendar year, if the employer also meets the condition stated in subsection (H)(2).

Example 2:

An employer determines whether the average amount of Arizona income taxes withheld in the 4 preceding calendar quarters does not exceed $200 as follows:

4th quarter of 1999 withholding $200

3rd quarter of 1999 withholding $400

2nd quarter of 1999 withholding $250

1st quarter of 1999 withholding $150

Total withholding $1,000

Divide by 4

Average withholding $250

The average amount of Arizona income taxes withheld in the 4 preceding calendar quarters exceeds $200. Therefore, the employer may not make its Arizona withholding payments on an annual basis for the succeeding calendar year.

2. The employer has timely filed the annual tax return and has timely made its annual Arizona withholding payment as prescribed by subsection (G) for the preceding calendar year.

I. If the employer does not meet the conditions prescribed by subsection (H):

1. The employer shall determine its Arizona withholding payment schedule for succeeding calendar quarters as prescribed by subsection (A); and

2. The employer shall file the quarterly tax return for succeeding calendar quarters as prescribed by subsection (E).

J. An employer shall determine the applicable rate of withholding for each employee as follows:

1. If an employee whose annual compensation is less than $15,000 elects the minimum withholding rate, that rate shall apply until 1 of the following situations occurs:

a. Until the employee has 12 full months of work history with the employer, the employer shall determine the employee's annualized compensation at the end of each month. The employer may use any method of annualization that accurately reflects the employee's annual compensation. If the employer determines that the employee's annualized compensation is $15,000 or more, the employer shall adjust the employee's rate of withholding beginning the next full pay period following the determination. The employer shall adjust the rate to the minimum rate prescribed by A.R.S. § 43-401, unless the employee elects a higher prescribed rate of withholding for the employee's annual compensation. The employer shall apply the minimum rate of withholding until the employee has been employed for 12 full months, unless the employee elects a higher prescribed rate of withholding for the employee's annual compensation. After 12 full months of employment, the employer shall determine the rate under subsection (J)(1)(b);

b. If the employee has 12 full months of work history with the employer, the employer shall determine the employee's total compensation for the 12-month period. If the records for that period show that the employee earned $15,000 or more, the employer shall adjust the rate of withholding beginning the next full pay period following the determination. The employer shall adjust the rate to the minimum rate prescribed by A.R.S. § 43-401, unless the employee elects a higher prescribed rate of withholding for the employee's annual compensation. The employer shall apply this rate of withholding through the end of the calendar year, unless the employee elects a higher prescribed rate of withholding for the employee's annual compensation. At the end of that calendar year and at the end of each succeeding calendar year, the employer shall redetermine the employee's total annual compensation. If the employee's annual compensation for the preceding year changes the employee's rate of withholding, the rate change shall begin the next full pay period following the determination; or

c. If the employee receives a salary increase that makes the employee's annualized compensation $15,000 or more, the employer shall adjust the employe's rate of withholding to the minimum rate prescribed by A.R.S. § 43-401, beginning the next full pay period following the receipt of the increase by the employee.

2. An employee who has elected a withholding rate higher than the minimum prescribed withholding rate may later elect to reduce the rate to a lower prescribed rate for the employee's annual compensation.

Ariz. Admin. Code § R15-2B-101

Recodified at 6 A.A.R. 2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2).