The United States has a complex, layered tax structure involving federal, state and sometimes local taxes. While most people are familiar with federal income taxes, state income taxes often lead to confusion, especially because not all states impose them. What is state income tax for, and what are the consequences for failing to pay?

Understanding State Income Tax

Each state government decides whether to impose an income tax based on its funding needs and economic philosophy. States with income taxes typically use the revenue they generate to pay for initiatives like public safety, education and infrastructure.

Some states, like Tennessee, Texas and Florida, choose not to levy income taxes to attract more residents and businesses seeking lower tax burdens. However, they typically compensate with higher sales or property taxes.

How Does Income Tax Work in Arizona?

While Arizona previously had a progressive tax system with four brackets that varied based on income levels, the state switched to a 2.5% flat tax rate in 2023, which applies to tax returns filed in 2024 and beyond.

Full-time and part-time Arizona residents with a gross income above specific thresholds, as well as non-residents who earn income from sources located in the state, must file state income tax returns annually.  

Consequences of Not Paying State Income Tax

Failing to pay state income tax can result in various penalties and interest charges, which accumulate until you fully pay your tax debt. For example, there is a failure-to-file penalty if you do not submit your return by the deadline and a failure-to-pay penalty if you do not pay the amount you owe.

Unpaid taxes can also adversely impact your credit score, making it harder to get loans for purchases like homes and cars. In more severe cases, taxpayers might face legal actions such as liens against their property or wage garnishment.

Do You Need Professional Tax Advice?

Given the complexities of Arizona’s state income tax and the consequences of not filing a state return, consulting with experienced tax professionals is crucial. As the best tax accountants in Arizona, Clear View Business Solutions’ team specializes in individual tax compliance and representation.

We can help you optimize your tax returns to take full advantage of available deductions and credits, while avoiding costly penalties and interest. Our advice can be invaluable, especially if you are only a part-time Arizona resident or earn income from sources like a rental property located in this state. Contact us to provide the clarity and support you need for all your tax-related matters.