Arizona retirement taxes at a glance (2026)
| State income tax | Flat 2.5%Arizona has a flat 2.5% income tax. |
|---|---|
| Social Security | Not taxedArizona does not tax Social Security benefits. |
| Pensions | TaxedPrivate pensions are taxed at 2.5%. Only government pensions get a small $2,500 subtraction. |
| 401(k) and IRA withdrawals | TaxedIRA, 401(k) and 403(b) withdrawals are taxed at 2.5%. |
| Government pensions | Partly taxedUp to $2,500 per taxpayer of U.S. civil service or Arizona state and local government pension income can be subtracted; the rest is taxed at 2.5%. |
| Military retirement pay | Not taxedMilitary retirement pay has been fully exempt since tax year 2021. |
| Estate tax | No |
| Inheritance tax | No |
| Property tax help for seniors | The Senior Property Valuation Protection Option freezes the home's value for renewable 3-year periods for owners 65+ with income below $47,712 (one owner) or $59,640 (two or more owners). |
| Sales tax | State rate 5.6%; average combined state and local rate is about 8.52%. |
Recent changes and good to know
- SB1371 (2025) proposed a subtraction for retirement distributions at age 67+, but it died in the House in 2025 and is not law.
- The $2,500 government pension subtraction is not indexed for inflation.
How to lower your retirement taxes in Arizona
- Mix your income sources. Roth IRA withdrawals are tax-free at the federal level and generally in Arizona too, so a Roth conversion before retirement can cut state tax later. Try the Roth conversion calculator.
- Watch federal Medicare costs. Large IRA withdrawals can raise your Medicare premiums. Check the 2026 IRMAA brackets.
- Think about your heirs. See what your IRA will really cost your family with the Family Tax Rate calculator.
- Comparing states? These have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
Frequently asked questions
Does Arizona tax retirement income?
Partly: Arizona does not tax Social Security or military pay, but it taxes pensions and IRA/401(k) withdrawals at a flat 2.5%.
Does Arizona tax Social Security?
Arizona does not tax Social Security benefits.
Does Arizona tax pensions?
Private pensions are taxed at 2.5%. Only government pensions get a small $2,500 subtraction.
Does Arizona tax 401(k) and IRA withdrawals?
IRA, 401(k) and 403(b) withdrawals are taxed at 2.5%.
Does Arizona tax military retirement pay?
Military retirement pay has been fully exempt since tax year 2021.
Sources (last verified 2026)
- ARS 43-1022 Subtractions from Arizona gross income — Arizona Legislature (2026-09-24)
- Arizona State Taxes 2026 — AARP (2026-01-28)
- AZ SB1371 (2025) bill status — BillTrack50 (2025-06-27)
Educational content only, not tax, legal or investment advice. Plans and tax laws change; confirm details with your employer's plan documents or your state revenue department. Smart Financial Lifestyle is not affiliated with any employer named on this site.