Does Arizona tax Social Security benefits?

No. Arizona fully exempts Social Security retirement benefits from state income tax. Even though the federal government may tax up to 85% of your benefits, Arizona lets you subtract 100% of any Social Security included in federal income, so none of it is taxed by the state.

How does Arizona tax pensions?

Most pension income is taxable in Arizona at the flat 2.5% rate. However, up to $2,500 per year of pension income from US government, Arizona state, or Arizona local-government service can be subtracted. Private-employer and out-of-state government pensions do not qualify for that subtraction.

Are 401(k) and IRA withdrawals taxed in Arizona?

Yes. Distributions from traditional 401(k) plans and IRAs are fully taxable in Arizona as ordinary income at the 2.5% flat rate, the same as on your federal return. Qualified Roth withdrawals are tax-free at both the federal and Arizona level because they were funded with after-tax dollars.

What is Arizona's income tax rate for retirees?

Arizona uses a single flat individual income tax rate of 2.5% as of tax year 2023 and later. There are no separate brackets, so all of your taxable Arizona retirement income is taxed at the same 2.5% rate after exemptions and subtractions are applied.

Is Arizona a tax-friendly state for retirees?

Generally yes. Arizona has no estate or inheritance tax, fully exempts Social Security, and applies a low 2.5% flat income tax to other retirement income. Combined with a modest $2,500 government-pension subtraction, total state income tax on retirement income is usually low.

Arizona Retirement Income Tax Calculator

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The Arizona Retirement Income Tax Calculator estimates the Arizona state income tax on your retirement income. Arizona uses a flat 2.5% income tax, fully exempts Social Security, allows up to $2,500 of qualifying government-pension income to be subtracted, and taxes traditional IRA and 401(k) withdrawals as ordinary income. It is for retirees and near-retirees comparing how much of their nest egg the state will keep.

How it works

The tool builds your Arizona taxable retirement income, then applies the flat rate:

social security        -> 100% excluded (subtracted)
government pension      -> up to $2,500 subtracted
other / private pension -> fully taxable
IRA / 401(k) withdrawal -> fully taxable
Roth withdrawal         -> 0 (already tax-free)

az taxable = (govt pension - min(govt pension, 2500))
           + private pension + traditional withdrawals
az tax     = az taxable x 2.5%

Social Security is removed entirely. The government-pension subtraction is capped at $2,500 and applies only to US, Arizona state, or Arizona local-government service pensions. Everything else flows into the 2.5% flat tax.

Example and notes

A retiree with $24,000 Social Security, a $30,000 Arizona state pension, and $20,000 in 401(k) withdrawals:

social security: $24,000 excluded
govt pension:    $30,000 - $2,500 subtraction = $27,500 taxable
401(k):          $20,000 taxable
az taxable:      $47,500
az tax (2.5%):   $1,187.50

Roth IRA/401(k) qualified withdrawals are tax-free — leave them out or mark them as Roth.
The $2,500 subtraction is per taxpayer and applies only to qualifying government pensions.
This estimates Arizona state tax only — federal tax is separate. Everything runs in your browser.