Construction Contract Cost Plus Withholding Tax In Arizona
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A total Transaction Privilege (Sales) Tax rate of 8.35%, (6.35% State and County, 2.00% Prescott), is imposed on the gross income of any person engaging in Construction Contracting. If tax has been neither separately charged nor separately collected, factoring of tax is allowed in computing taxable income.
An employer that pays wages or other compensation to employees for work done in Arizona is required to withhold Arizona income tax. Register with the Arizona Department of Revenue by submitting the Arizona Joint Tax Application (AZ Form JT-1).
To change the amount of Arizona income tax withheld, an employee must complete Arizona Form A-4 and submit to his or her employer to choose a different withholding percentage. Employees may also request to have an additional amount withheld by their employer.
If you make this election, your employer will not withhold Arizona income tax from your wages for payroll periods beginning after the date you file the form. Zero withholding does not relieve you from paying Arizona income taxes that might be due at the time you file your Arizona income tax return.
Withholding Percentage Options Keep in mind for tax year 2023 and beyond, the tax rate for Arizona taxable income is 2.5%.
Arizona originally adopted TPT in 1933 when the rate for selling tangible personal property at retail was 2 percent. That rate is currently 5.6 percent. On top of the state TPT, there may be one or more local TPTs, as well as one or more special district taxes, each of which can range between 0 percent and 5.6 percent.
To register for both an income tax withholding account with the Department of Revenue and an unemployment insurance account with the Department of Economic Security, the employer will need to complete the JT-1 application on AZTaxes or complete the form and return the completed form to the department.
Businesses that perform the following activities are subject to TPT and must be licensed. retail sales. restaurants/bars. hotel/motel (transient lodging) commercial lease. amusements. personal property rentals. contracting. severance (metal mining)
Withholding percentage that is less than line 9. Subtract line 11 from line 8. Enter this amount in the additional amount space on line 1 of Form A-4. Select a higher percentage for line 10 than line 9 if you want an overpayment (refund) and a lower percentage if you want an underpayment (owe).
I would just do 2.5%. Assuming this is most or all of your income, it'll be enough because there are deductions when you do your taxes. If the withholding is too high, you get a refund at tax time - same as the Feds. Underpayment penalties exist, but there's a threshold based on the percentage you were off.
