Arizona voters approved Proposition 208, which took effect on January 1, 2021. Prop 208 adds a 3.5% surcharge to Arizona’s highest personal income tax bracket, resulting in an effective tax rate of 8% for affected taxpayers. At this increased 8% tax rate, Arizona becomes one of the highest taxing states for top earners.
Affected individuals are the following taxpayers:
- Married filing jointly or single head of household with annual taxable income over $500,000.
- Single or married filing separately with annual taxable income over $250,000.
If you do not fall into one of these categories, then you will not see the additional 3.5% tax rate on your Arizona liability. Prop 208 also does not impact business taxpayers.
Opponents of Prop 208 have filed a lawsuit challenging its constitutionality in aim of preventing its enforcement. However, at this time, the 3.5% surcharge should be treated as effective for tax year 2021 unless the court rules otherwise.