For as long as I can remember, the state of Arizona has taken a percentage of our Federal withholding. But that is about to change. Beginning on July 1st, 2010,

For example, let's say your gross pay is $1000 and your Federal withholding is 7% of your gross, or  $70.00.  Your Arizona state withholding was then a percentage of that.  The highest amount of withholding is 42.5% so your state withholding would be $29.82.

Your employer may have already approached you with the new A4, and if not, he or she should during the month of June, since the new withholding method begins on July 1st.

As of last Thursday, the state of Arizona had not sent out any notifications to businesses, at least nothing had been received by my employer. I'm sure they'll be sending out notifications soon.

But since I have to do Mr. A's Transaction Privilege Tax each month, I saw the notification at the AZ Taxes website and also, in a comment to one of my recent posts, Funny About Money mentioned the new method of withholding.

We found that most of our employees were confused by the examples on the  Arizona state Form A-4.  If you are satisfied with the amount being taken from your check (as determined by your withholding last year: Did you have enough taken? Did you owe? Did you have a huge refund?) then all you need to do is figure out which withholding percentage comes close to what is being removed now.

Here's a simple method:

Find your last paystub.   Locate the amount of state withholding. Using my example above, let's say your withholding was $29.82.   Here's a screenshot of what you'll see on the form (feel free to click on it to see a larger version):

Let's say your annual compensation is more than $15,000. You can choose to have these amounts withheld.

• 1.8%
• 2.7%
• 3.6%
• 4.2%
• 5.1%

And you can have an additional amount withheld if you so choose.

You want $29.82 withheld, so now you just start multiplying your gross by the amounts.

• $1000 multiplied by 1.8% is $18.00. Not enough.
• $1000 multiplied by 2.7% is $27.00.  You could choose this one, if you don't mind have a few dollars less withheld.
• $1000 multiplied by 3.6% is 36.00. This one is just about six dollars more than was being withheld using the old method.

What I would do in this case is I would consider my income tax liability for last year.  Did I have to pay a small amount or did I get a refund?

Personally, I would rather be liable to pay a small amount since the state is in trouble financially.  So I would probably choose to have 2.7% withheld.

Yours Truly,