How to pick a percentage for AZ withholding

Hmm, I'd expect the refund to *increase*, or the required payment to decrease, as a result of this scenario. The withholding tables are presumably designed on the assumption that the employee receives that salary for the entire year; a higher salary might result in withholding based on being in a higher tax bracket, but their lower salary before the job change can result in their total earnings for the year being in the lower bracket.

AZ withholding tables are a % of gross wages. The t/p selects the percentage from the form. AZ tax rates are progressive from 2.6% to 4.5% (I rounded the actual percentages). In order to select the proper withholding rate, one has to make an estimate of taxable income to compute one's tax including any credits. Then you can compute what percentage of gross wages the tax bill represents.

E.g., a single t/p with $40K wages and $50K of taxable income. The tax on $50K is $1531 assuming no credits are available. 1531/40000 = 3.83%. The t/p could select 3.6% or 4.2% as the withholding rate depending upon whether he wants a refund or not.

So, the answer is: yes a t/p needs to make an estimate of AZ tax liability in order to accurately estimate the rate of withholding from wages.

So is that what AZ taxpayers do, estimate their future tax liability (or hire someone to do it) every time they're confronted with a withholding form?

Raise your hand if you always felt confident recommending that clients take the Advance EIC (before repeal), because you knew if they lost EIC eligibility mid-year (e.g. better job or divorce) they would recognize the need to immediately call you to help adjust their withholding to recapture the Advance EIC already paid.

I expect you Arizona tax preparers to all be raising your hands :-), because apparently taxpayers there are used to frequently re-estimating their tax liability every time they get a promotion, or a dependent leaves their household. Or is there some kind of "street knowledge" circulating, that if you move in certain circles you pick a certain percentage?

My experience in other states has been that most clients (at least the kind who would have trouble paying a surprise $1,000 tax bill) don't think about income taxes between the day they get their refund and when next year's W-2s come out. It seems to me that AZDOR is abdicating some of the responsibility that goes along with running a pay-as-you-earn system.

Thanks, Lee