Employer's Guide to Unemployment Insurance Tax in Arizona

Everything employers need to know about paying unemployment insurance taxes in Arizona.

If your small business has employees working in Arizona, you’ll need to pay Arizona unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Arizona, state UI tax is just one of several taxes that employers must pay. Other important employer taxes, not covered here, include federal UI tax, and state and federal withholding taxes.

Different states have different rules and rates for UI taxes. Here are the basic rules for Arizona’s UI tax.

Register With the Department of Revenue and Department of Economic Security

As an Arizona small business, you must register with the Arizona Department of Revenue (DOR) and ArizonaDepartment of Economic Security (DES). More specifically, you must submit a joint registration to DOR; DOR then forwards a copy to DES. If DES determines that your business is liable for UI taxes, they will issue you an Arizona UI employer account number.

You can register either online or on paper. To register online, use the AZTaxes.gov website. To register on paper, use Form JT-1/UC-001, Arizona Joint Tax Application. Blank forms are available for download from the Forms section of the DOR website. There is no fee to register your business for UI tax purposes (there are fees for transaction privilege tax (TPT) licenses).

Note: To establish your Arizona UI tax account, you’ll need a federal employer identification number (EIN). You can apply for an EIN at IRS.gov. Generally, if you apply online, you will receive your EIN immediately.

Rules for UI Tax Liability

As an Arizona for-profit employer, you generally are liable for state UI taxes if you:

  • pay $1,500 in wages in a calendar quarter
  • employ at least one worker for some part of a day in each of 20 different weeks in a calendar year
  • acquire the business or part of the business of an employer already subject to unemployment taxes, or
  • are required to pay Federal Unemployment Tax because you employ any individuals in any other state or for any other reason.

The first three listed items are effectively the same rules that apply for liability under the Federal Unemployment Tax Act (FUTA). Therefore, if you’re liable under FUTA, you’re likely also liable for Arizona UI taxes, and vice versa. Different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.

One piece of good news is that state UI tax payments generally can be credited against your FUTA taxes.

Wage Base and Tax Rates

UI tax is paid on each employee’s wages up to a maximum annual amount. In recent years, that amount, known as the taxable wage base, has been steady at $7,000 in Arizona. However, it’s always possible the amount could change.

The state UI tax rate for new employers also can change from one year to the next. However, in recent years, it has been steady at 2.0%. Established employers are subject to a lower or higher rate than new employers depending on an “experience rating.” This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits.

File Quarterly UI Tax Reports and Payments

In Arizona, UI tax reports and payments are due by the last day of the month after the close of each calendar quarter. In other words:

For Wages Paid During

Calendar Quarter Ends

Report Due By

January, February, March

March 31

April 30

April, May, June

June 30

July 31

July, August, September

September 30

October 31

October, November, December

December 31

January 31

If the due date falls on a weekend or state holiday, the due date is extended to the next business day.

You can file your reports and payments online or on paper. To file online, use the Arizona Unemployment Tax and Wage System (TWS). To file on paper, use Form UC-018, Unemployment Tax and Wage Report. DES custom-generates and mails the form to each employer with an active UI tax account every quarter. You can also download blank forms from the DES website.

You can make online payments either along with or separately from online report filing. You also have the option when filing reports online to select the paper check payment option, which generates a payment voucher for you to print and submit along with your payment by check. Online payments are made using Automated Clearing House (ACH). You can make paper payments using a check or money order.

You must file a quarterly Unemployment Tax and Wage Report for each quarter whether or not wages were paid. If you stop submitting reports without your account being suspended, this will create delinquent reports and could result in higher future tax rates being computed for your account based on estimated wages. You will be subject to a penalty if you fail to file.

Post a Notice (Poster)

You are required to post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster provides basic information about when an employee may be eligible for unemployment benefits. You can download a notice that meets all legal requirements (Form POU-003, Notice to Employees) from the DES website.

Do Not Misclassify Employees as Independent Contractors

Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.

Using Payroll Service Companies

You may decide that it’s easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.

Additional Information

This article touches on only the most basic elements of Arizona UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DES websites for the latest information. DES also has a helpful Employer Handbook that you can download from the DES website. In addition to state UI tax, employers have other responsibilities not covered in this article such as federal UI tax, state and federal withholding taxes, required reporting of new hires, and required retention of employee records. You can get more information about other small business tax issues in other articles here on Nolo.

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