The Arizona Legislature passed, and Governor Ducey signed, the Fiscal Year 2022 budget earlier this week. Under Arizona’s budget, nearly $1 billion in debt is paid off and another $1 billion is appropriated to help reduce the state’s pension liabilities.

The Arizona Department of Agriculture received increased funding for Plant Services Division salary increases, State Agriculture Laboratory Scientist position and equipment, salary increases for 12 Agriculture Lab Positions, funding for cloud services migration, and more.

The budget also implements the first steps towards a 2.5% flat tax, which will be phased in over three years beginning on January 1, 2022.

For tax year 2022, single filers will pay a tax rate of 2.55% for taxable income of up to $27,272 and 2.98% on taxable income above $27,272. The income bracket for individuals filing as married couples or heads of household is twice that amount, or $54,544.

Further rate reductions beyond the 2.55%/2.98% rates will be contingent upon the state receiving more revenue than forecasted. The “trigger” target is set at $12.8 billion in FY 2022 and $13.0 billion in FY 2023 and each year thereafter.

If the state receives more than the FY 2022 trigger level, the rates will be reduced to 2.53%/2.75%, beginning in 2023. If the state receives more than $13.0 billion in FY 2023 or any subsequent year, the rate will be reduced to a single 2.5% rate in the following tax year.

The budget also includes a 4.5% rate cap for taxable income beginning in 2021 above $250,000 for single filers, and $500,000 for individuals filing as married couples or heads of household. Absent the cap, the combined rate would be 6.48% in 2022 due to the passage of Proposition 208.

For full details within the FY22 Arizona Budget, please click HERE.