Does Arizona Tax Social Security and Retirement Income?

Social Security is subtracted in full

Arizona starts from federal adjusted gross income and then subtracts the amount of Social Security that was taxed federally. The statute removes the whole amount included in federal AGI under the federal benefit-taxation rule, with no income limit. On Form 140 the subtraction is taken on line 30. (A.R.S. 43-1022, subtractions from Arizona gross income)

The same line covers Railroad Retirement Board payments: tier 1 and tier 2 benefits, railroad disability benefits and railroad unemployment and sickness payments. Only the portion that was actually taxed on the federal return is entered, since the rest was never in Arizona income to begin with. (Arizona Department of Revenue, 2025 Form 140 instructions)

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Private pensions are taxed; government pensions get $2,500; military pay is exempt

A pension from a private employer has no Arizona subtraction. It is in federal AGI and is taxed at 2.5% like wages or interest. (Arizona Department of Revenue, 2025 Form 140 instructions)

Government pensions get a small exclusion on line 29a. A retiree can subtract the amount received or $2,500, whichever is less, from the federal civil service and foreign service retirement systems and other federal plans, the Arizona State Retirement System, the public safety, corrections officer and elected officials’ plans, the optional university and community college programs, and Arizona county, city and town plans. Each spouse with a qualifying pension gets a separate $2,500. Pensions from other states’ public systems are not on the list. (A.R.S. 43-1022, subtractions from Arizona gross income)

Military retirement is treated far more generously. Retired or retainer pay of the uniformed services was capped at $2,500 through 2018 and $3,500 for 2019 and 2020; for tax years from 2021 onward the full amount is subtracted, on line 29b. (A.R.S. 43-1022, subtractions from Arizona gross income)

IRA and 401(k) withdrawals are fully taxed at 2.5%

Traditional IRA and 401(k) distributions are taxed to the extent they are in federal AGI. The $2,500 government pension subtraction does not extend to IRAs or to private-sector plans, and Arizona has no general retirement income exclusion tied to age. (Arizona Department of Revenue, 2025 Form 140 instructions)

A Roth conversion is taxed the same way. The converted amount is part of federal AGI, no Arizona subtraction applies to it, and it bears the 2.5% rate. With a single flat rate there is no higher state bracket for a conversion to climb into, which is unusual: the state cost of converting $100,000 is $2,500 whether it is done in one year or five. (Arizona Department of Revenue, individual income tax highlights)

A conversion can still cost more than 2.5% indirectly. The federal senior deduction that Arizona now subtracts shrinks by 6% of modified AGI above $75,000 for single filers and $150,000 for joint filers, so income that pushes a household through that range raises Arizona taxable income by more than the income itself. (A.R.S. 43-1022, subtractions from Arizona gross income)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Investment income is taxed at 2.5%, with a 25% break on some long-term gains

Interest, dividends and capital gains are part of federal AGI and are taxed at the flat rate. Interest on U.S. government obligations is subtracted on line 28. Qualified dividends receive no special treatment. (Arizona Department of Revenue, 2025 Form 140 instructions)

Long-term capital gains do get a break. Arizona subtracts 25% of any net long-term capital gain included in federal AGI that comes from assets acquired after December 31, 2011, which brings the effective rate on those gains to 1.875%. An asset received by gift or inheritance takes the original owner’s acquisition date, and the subtraction is not allowed where the date cannot be verified. The example households on this page do not take it, because their figures combine gains and qualified dividends. (A.R.S. 43-1022, subtractions from Arizona gross income)

Arizona taxes all taxable income at 2.5%, for every filing status. The Department of Revenue has retired its tax tables because the tax is now a single multiplication. (Arizona Department of Revenue, individual income tax highlights)

The standard deduction is written into statute at $15,750 for single filers and married people filing separately, $23,625 for heads of household and $31,500 for joint filers, matching the 2025 federal amounts. The statute directs the Department of Revenue to adjust those figures each year in the same way the federal standard deduction is adjusted. The 2026 Arizona amounts had not been published when this page was reviewed, so the figures and examples here use the 2025 amounts and will slightly overstate 2026 tax if the deduction rises. (A.R.S. 43-1041, optional standard deduction)

Arizona has no personal exemption for the taxpayer, and no additional standard deduction for age. What it has is a separate $2,100 exemption for each filer or spouse who is 65 or older, claimed on line 38, and a $1,500 exemption for blindness. (Arizona Department of Revenue, 2025 Form 140 instructions)

From 2026, filers who take the standard deduction can add their charitable contributions to it, up to $1,000 for single filers and $2,000 for joint filers. This replaces the earlier rule that added a percentage of contributions (34% for 2025). (A.R.S. 43-1041, optional standard deduction)

Age-65 exemption: $2,100 per person 65 or older, in addition to the standard deduction. Worth $52.50 of tax each at the 2.5% rate. (Arizona Department of Revenue, 2025 Form 140 instructions)

Federal senior deduction: for tax years beginning after December 31, 2024, Arizona subtracts the amount deducted on the federal return under the temporary senior deduction, which is up to $6,000 per person 65 or older and phases out above $75,000 of modified AGI for single filers and $150,000 for joint filers. For a couple who receive the full $12,000 federally, that is $300 less Arizona tax. The federal provision is scheduled to expire after 2028. (A.R.S. 43-1022, subtractions from Arizona gross income)

Government pension subtraction: up to $2,500 per person for federal civil service and Arizona state and local government pensions, with no age or income test. (A.R.S. 43-1022, subtractions from Arizona gross income)

Care costs: a $2,300 exemption is available for each person 65 or older for whom the taxpayer pays more than a quarter of nursing or residential care costs, or more than $800 a year of home health or medical care, and a $10,000 exemption applies for a parent or grandparent 65 or older who lives with the taxpayer and needs help with daily living. (A.R.S. 43-1023, exemptions for blind persons and persons 65 or older)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Arizona's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Property tax in Arizona is light. The Tax Foundation’s 2026 comparison, using 2024 Census data, puts the effective rate on owner-occupied homes at 0.48% of value, 47th among the states. On a $500,000 home that is about $2,400 a year. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figure))

Two constitutional limits hold bills down for homeowners. Primary property taxes on a residence cannot exceed 1% of its limited value, though taxes for voter-approved bonds and special districts sit outside that cap. And since 2015 the taxable value of a property cannot rise by more than 5% a year, however fast market prices move. (Arizona Constitution, Article 9, Section 18, residential property tax limits)

The senior program is a valuation freeze, not a tax freeze. Homeowners 65 or older who have lived in the home for two years and meet an income limit can lock the home’s taxable value for three years at a time. Tax rates can still change, so the bill can still move, but reappraisal no longer drives it. The income limits are set in the constitution at four and five times the federal Supplemental Security Income rate, which is why few affluent households qualify. (Arizona Constitution, Article 9, Section 18, residential property tax limits)

Arizona’s sales tax is formally a transaction privilege tax on the seller, passed on to the buyer. The state rate is 5.6%, and counties and cities add their own. City rates vary a good deal, so the combined rate depends heavily on the address. (Arizona Department of Revenue, transaction privilege and other tax rate tables, January 1, 2026)

The Tax Foundation puts the population-weighted average combined rate at 8.52% as of January 2026, one of the higher figures in the country and a counterweight to the low income and property taxes. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figure))

Groceries are exempt from the state tax, and prescription drugs, insulin, prescription eyeglasses and hearing aids are exempt as well. Cities may still tax food for home consumption under their own codes, and the state’s rate tables list a separate food rate for the cities that do. Clothing is taxed. (A.R.S. 42-5061, retail classification and exemptions)

Arizona has neither an estate tax nor an inheritance tax. Its estate tax had been tied to a federal credit for state death taxes; when Congress phased that credit out, the tax stopped raising revenue, and the Legislature repealed it permanently in 2006. (Arizona Legislature, S.B. 1170 (2006) final summary, estate tax repeal)

Heirs who live in Arizona pay the 2.5% income tax on distributions from inherited traditional IRAs and 401(k) plans, as they would on their own. Inherited assets sold later benefit from the federal step-up in basis, which carries into Arizona income because the starting point is federal AGI. (Arizona Department of Revenue, 2025 Form 140 instructions)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

House Bill 4168, signed in June 2026, updated Arizona’s conformity to the Internal Revenue Code as of January 1, 2026 and reset the standard deduction to $15,750, $23,625 and $31,500. Those amounts already applied on 2025 returns. (Arizona Laws 2026, Chapter 140 (H.B. 4168), approved June 13, 2026)

The same law added a subtraction, effective for tax years beginning after December 31, 2024, for the federal senior deduction. Retirees who claimed that deduction federally for 2025 are entitled to the Arizona subtraction for 2025 as well, and the printed 2025 Form 140 instructions, issued before the law passed, do not mention it. (A.R.S. 43-1022, subtractions from Arizona gross income)

For 2026, the charitable add-on to the standard deduction changes from a percentage of contributions to a flat cap of $1,000 (single) or $2,000 (joint), and the itemized deduction for state and local taxes is limited to $10,000 on the Arizona return. (Arizona Laws 2026, Chapter 140 (H.B. 4168), approved June 13, 2026)

The income tax rate remains a flat 2.5% at every income level. The 2026 conformity law changed deductions and subtractions but left the rate alone. (Arizona Department of Revenue, individual income tax highlights)

An Arizona resident is someone domiciled in the state, meaning the place of their permanent home, to which they intend to return when away. Anyone who spends more than nine months of the tax year in Arizona is presumed to be a resident, a presumption that can be rebutted by showing the stay was temporary. (A.R.S. 43-104, definitions (resident))

This matters for winter visitors. Someone who keeps a home in another state and spends five months in Arizona is not a resident and owes Arizona tax only on Arizona-source income, such as rent from an Arizona property. Under federal law their pension and IRA income cannot be taxed by Arizona at all. (4 U.S.C. 114, limitation on state income taxation of certain pension income)

People who move in or out during the year file Form 140PY as part-year residents and are taxed on all income received while resident. Retirees arriving from a higher-tax state should expect their former state to look at when domicile actually changed; Arizona’s rules decide only the Arizona side. (Arizona Department of Revenue, 2025 Form 140 instructions)