Arizona vs California: Taxes & Take-Home Pay 2026

Arizona vs California: flat 2.5% against ten brackets

Arizona taxes income at one flat 2.5% rate after a $15,750 standard deduction for single filers ($31,500 joint). California uses 10 brackets from 1% to 13.3% with a much smaller $5,900 standard deduction, and adds 1.3% SDI. Arizona is lower at every income, and the gap widens as pay rises because Arizona’s rate never climbs.

For Southern Californians the comparison is usually Phoenix or Tucson against Los Angeles, San Diego or the Inland Empire. Retirees also compare the two because Arizona exempts Social Security and charges a low flat rate on pensions.

Worked example: single filer earning $85,000

One salary, standard deduction, no pre-tax deductions:

• Arizona taxable income is $69,250, so state tax is $69,250 × 2.5% = $1,731.
• California reaches its 9.3% bracket at $75,197 of taxable income, so this filer pays 9.3% on the last dollar against 2.5% in Arizona.
• Total difference: $2,890 a year more in Arizona.

Sales tax: Arizona’s transaction privilege tax

Arizona’s sales tax is technically a tax on the seller’s privilege of doing business, the transaction privilege tax (TPT), usually passed on to buyers. The 5.6% state rate is lower than California’s 7.25%, but Arizona cities and counties add an average of 2.94%, so combined rates are close: 8.54% in Arizona against 9.03% in California on average, with Arizona’s maximum (10.9%) below California’s (12.5%). Within California the spread is wide: 7.75% in San Diego, 10.25% in Los Angeles.

Retirement income in Arizona and California

For a retiree drawing $60,000 of IRA income on a joint return, Arizona tax is $713 and California tax is $419.

• Social Security: neither state taxes it. Arizona subtracts the amount included in federal income; California adjusts it out on Schedule CA.
• Government pensions: Arizona allows a subtraction of up to $2,500 for federal, Arizona state and local government pensions. California has no comparable exclusion.
• Private pensions, 401(k) and IRA withdrawals: taxable in both states, but at 2.5% flat in Arizona against California’s graduated rates.
• Capital gains: California taxes them as ordinary income; Arizona taxes them at its flat 2.5% rate.

Working remotely from Arizona for a California employer

California taxes nonresidents only on California-source income, and wages are sourced to where the work is done. A Phoenix resident working from home for a Los Angeles company owes Arizona’s 2.5% on those wages and no California tax, except for days spent working in California. Payroll should withhold Arizona tax using Form A-4 and stop California SDI once your work location is updated; check your first Arizona pay stub to confirm it has.

Part-year rules and snowbirds

If you move during 2026, you file part-year returns in both states: California Form 540NR and Arizona’s part-year resident return (Form 140PY). Each state taxes the income you received while living there, plus income sourced to it while you lived elsewhere, such as rent from property in the state.

Snowbirds who keep homes in both states need to decide which one is their domicile and live accordingly. California treats you as a resident if you are there for more than a temporary or transitory purpose, so splitting the year evenly while keeping your main ties in California can leave you a California resident on all income.

Other Arizona features that change the comparison

A few smaller rules can tilt the result for particular households:

• Arizona lets you subtract qualified tips and qualified overtime pay that you deducted on your federal return (for tax years after 2024), so tipped and hourly workers can see a lower Arizona bill than the flat-rate arithmetic suggests.
• Arizona has no employee-paid disability or family leave premium, so there is no line comparable to California SDI on an Arizona pay stub.
• Arizona’s dependent credit is $125 per child under 17; California’s dependent exemption credit is $491 per dependent, so a family with children gets a larger state credit in California even though its total tax is higher.