Employer has not been withholding AZ state income tax

[jstoecken]

I just noticed that my employer has not been withholding state income tax for Arizona. My employer said that "because the company does not have an AZ location, we have no way to accrue and pay the AZ tax." 

I do not want to be hit with a fine for not paying into state income taxes. What do I need to do to get things straightened out before tax season rolls around? 

Some background info:

• I moved from Nevada to Arizona in December 2019.
• I have been working from home (Arizona) all of 2020. 
• The company I work for is located in Nevada.
• I have worked for this same company for several years.
• I am paid once per month on a salary basis. 
• I am single with no dependents. 

[TomD8]

You'll need to begin making estimated tax payments to AZ.  This web reference gives the information you need:

https://azdor.gov/sites/default/files/media/PUBLICATION_2013_012.pdf

(The reference is dated 2013 but the rules haven't changed.)

[Anonymous]

there is no way to force an out of state employer to withhold for your state if they have no physical presence there. 

[jstoecken]

@Anonymous  I understand that I cannot force them to withhold the tax if they have no physical presence here, but does that make it impossible for them to withhold state tax if they wanted to? 

The person I talked to in accounting implied that it was simply not possible for them to withhold my AZ state tax since they don't have a presence here. 

[jstoecken]

Appreciate the reply, Tom. I will check into that. 

[Anonymous]

Arizona Residents Employed Outside of Arizona

Arizona residents who are working outside of Arizona may request that their employer withhold Arizona income taxes from your wages for work done outside of Arizona. The amount withheld is applied to your Arizona income tax due when you file your income tax return.

NOTE: An out-of-state employer is NOT required to withhold Arizona income tax from an Arizona resident’s wages. If an out-of-state employer agrees to withhold Arizona income taxes from your wages, complete Arizona Form A4-V and submit it to the employer. Arizona withholding is a percentage of gross taxable wages.

https://azdor.gov/businesses-arizona/withholding-tax#:~:text=NOTE%3A%20An%20out-of-state%20employer%... 

Physical presence is not required so it is possible for your company to w/h for AZ, but they can say NO.  Many companies do refuse because of the extra costs they incur or for other reasons. your situation is quite common - a resident of one state works in another state.  some of these states have reciprocity agreements

https://www.thebalance.com/state-with-reciprocal-agreements-3193329 

so w/h is done only for the resident state. your states don't have such an agreement.  without a physical presence in the other state, there is no way to force your company to withhold AZ taxes

[jstoecken]

Thanks for the reply. I submitted an A4 form to my employer yesterday and they agreed to withhold 5.1% for the remainder of the year. 

[Anonymous]

good. but will the withholding be high enough to cover your AZ tax for the whole year? if not you could be subject to under-withholding penalties. what you could do is take your estimated income for all of 2020. fill out a paper AZ 2019 return to calculate the tax which would serve as the estimate for 2020. then compare that to the withholding you will have. if short see if your employer will increase so your w/h equals the tax you calculated.  your other option is to make an estimated tax payment but you would still likely face those penalties because while withholding can be spread evenly over the year estimates only count from the date made. 

You're safe (no penalty for underpayment)  if the w/h is 90% of 2020 tax or 100% of 2019 tax. 

 2 other exceptions: 1) your net 2020 tax less withholding is less than $1000. 2) take the lower of the above amounts divide by 4. this is the amount that must be withheld or paid on estimate for that quarter to avoid a penalty for that quarter 

[jstoecken]

That's a good point. 

I used an online calculator to give me an estimate of what my w/h amount should be for 2020 ($1400 ballpark). If I withheld 15% from my next 2 payrolls I think it would every close to (or over) the estimated w/h amount. 

I was a NV resident last year (no state income tax) so can't use that as a reference point.