What’s new in Arizona for 2026: conformity, finally, and what it changed

The 2026 Arizona return will look almost exactly like the 2025 return, and that is the news. Arizona taxes federal adjusted gross income at a flat 2.5%, takes off a standard deduction that now tracks the federal one, and allows subtractions equal to the new federal deductions for tips, overtime and seniors 65 and over. All of that was true for 2025 only because the Governor ordered the Department of Revenue to build the forms that way before the legislature had agreed. HB 4168, signed June 13, 2026, made it law, retroactive to 2025. Three things did change for 2026: the subtraction for car-loan interest ended after one year, the itemized deduction for state and local taxes is capped at $10,000 no matter what the federal return allows, and the charitable add-on for people who take the standard deduction became 100% of gifts up to $1,000 single or $2,000 joint instead of 34% of gifts with no cap. The rate did not move, the November 3, 2026 ballot carried no income tax question, and the standard deduction figures for 2026 have not been published.

How Arizona got here

Arizona conforms to the Internal Revenue Code as of a fixed date, and the legislature has to vote each year to move it. Through 2025 the date was January 1, 2025, which meant the federal law signed July 4, 2025 did not exist for Arizona purposes. Because Arizona starts from federal AGI, most of that law flowed through automatically; the parts that did not were the below-the-line deductions for tips, overtime, seniors and car-loan interest, and the larger federal standard deduction, since Arizona writes its own standard deduction into statute.

The legislature and the Governor could not agree on a conformity bill before the 2025 forms had to go to print. In November 2025 the Governor issued Executive Order 2025-15, directing the Department to build the 2025 forms with five provisions: the increased standard deduction, and subtractions for the senior deduction, qualified tips, qualified overtime and qualified vehicle loan interest. The Department released those forms in January 2026 with a warning that taxpayers claiming the new subtractions might have to amend if the legislature went another way, with no penalty or interest if they did so by October 15, 2027. Two conformity bills, SB 1106 and HB 2785, were vetoed in January and February (verify), and the filing deadline passed with nothing settled.

HB 4168, the taxation budget reconciliation bill, resolved it. It moves the conformity date to January 1, 2026, adopts the retroactive provisions of the federal law for 2025, and writes the executive-order items into the Arizona Revised Statutes. Where the legislature wanted to differ from Congress, it said so, and those differences are the real 2026 changes.

What is the same for 2026 as for 2025

Tips. A subtraction equal to the federal deduction for qualified tips under IRC section 224, for 2025 through the end of the federal deduction in 2028. On the 2025 forms it ran through the Department’s Middle Class Tax Cuts Package worksheet to the Other Subtractions line on Form 140; where it lands on the 2026 form is to come. It was not available on the short Forms 140A and 140EZ for 2025 (verify for 2026). Part-year residents and nonresidents may subtract only tips included in Arizona income.

Overtime. The same, for the federal deduction for qualified overtime under section 225. The Arizona subtraction is the amount deducted federally, which is the premium half of time-and-a-half, not the whole overtime check.

The senior deduction. A subtraction equal to the federal deduction under section 151(d)(5)(C), up to $6,000 per person 65 or over, with the federal phase-out above $75,000 of modified AGI single or $150,000 joint. Arizona’s own age-65 exemption, $2,100 per person on the 2025 form (verify 2026), continues alongside it. See Arizona for retirees.

The standard deduction. Confirmed at $15,750 single or married filing separately, $23,625 head of household and $31,500 married filing jointly for 2025, with the statute now indexing them by the federal method under IRC section 63. The 2026 figures are to come; if the indexing produces the federal numbers, they will be $16,100, $24,150 and $32,200 (verify). The Department had not published the 2026 Form 140 instructions when this was written.

The rate. 2.5% on everything, every filing status, since tax year 2023. No brackets, no local income tax.

What changed for 2026

The 2026 Form 140 line numbers for the new and continuing subtractions were not published when this was written; expect a worksheet again or new lines on page 6.

Car-loan interest. This is the one most likely to be gotten backwards. The federal deduction for interest on a loan for a new, U.S.-assembled personal vehicle runs 2025 through 2028. Arizona matched it for 2025 only. A buyer who deducts $3,000 of interest federally in 2026 gets nothing for it in Arizona, and nothing needs to be added back, because the federal deduction sits below AGI where Arizona never sees it.

The $10,000 SALT cap. Arizona lets you itemize on the state return even if you took the federal standard deduction, and Arizona Schedule A begins from the federal itemized rules. For 2025 that meant the federal $40,000 cap on state and local taxes applied in Arizona too. For 2026 the Arizona cap is $10,000. Since Arizona income tax is added back on Schedule A in any case, the item is property tax plus any sales tax election, and the cap bites a household with more than $10,000 of property tax. For most Arizona homeowners it changes nothing.

The charitable boost. Arizona is one of a few states that rewards charitable gifts by people who do not itemize. For 2025 the standard deduction was increased by 34% of gifts, uncapped: $10,000 of gifts added $3,400. For 2026 it is increased by 100% of gifts, capped at $1,000 single or $2,000 joint. Small givers come out ahead; a couple giving $2,000 now adds $2,000 to the deduction instead of $680. Large givers lose: the same $10,000 couple adds $2,000 instead of $3,400, a difference of $35 of tax. Gifts used for any Arizona tax credit cannot be counted either year.

The dependent credit. $125 for each dependent under 17 at year-end, up from $100; $25 for other dependents, unchanged. It is nonrefundable and shrinks 5% for each $1,000 of federal AGI over $200,000 single or $400,000 joint. See Credits and breaks for Arizona families.

Child and dependent care. Arizona has never had a child care credit. From 2026 it has a subtraction for care expenses paid during the year that exceed the federal child and dependent care credit received: a family that spent $12,000 on care and got a $1,200 federal credit would subtract $10,800 (verify once the form is out), worth $270 at 2.5%.

The 2025 return you already filed

HB 4168 enacted every one of the executive-order provisions as written, so a 2025 return that claimed them matches the law and needs nothing. The open question runs the other way: a taxpayer who had tips, overtime, a senior deduction or car-loan interest in 2025 and left the subtractions off to avoid a possible amendment can now file Form 140X to claim them. The statute reads as though the subtractions apply to everyone; whether the Department will treat the amendment as required or optional had not been addressed in anything published when this was written. Either way, the money is there to be claimed.

Credits indexed for 2026

Arizona’s dollar-for-dollar credits for gifts to charities and schools are indexed, and the Department has posted the 2026 maximums: $506 single or $1,009 joint for a Qualifying Charitable Organization (Form 321), $632 or $1,262 for a foster care organization (Form 352), $787 or $1,570 for a school tuition organization (Form 323) and a further $784 or $1,561 under the Switcher credit (Form 348). The public school credit (Form 322) is not indexed and stays at $200 or $400. Gifts made through April 15, 2027 count for 2026. The full table, with 2027 figures, is in Arizona figures at a glance.

The ballot

Nothing on the November 3, 2026 ballot touched the income tax. Two measures touched other taxes, and both passed. Proposition 316, approved with about 61%, caps any city or town sales tax on groceries at 2% of the base price and requires voter approval to impose or raise one; it also bars any new or higher local grocery tax between July 1, 2025 and June 30, 2027. The state already exempts groceries from its own transaction privilege tax, so this is about the cities that tax them. Proposition 141 amends the constitution to bar any state or local tax or fee based on vehicle miles traveled. Both results are unofficial until the statewide canvass.

Beyond the return

HB 4168 also expands the property tax exemption for disabled veterans from the 2027 tax year: veterans rated totally disabled based on individual unemployability become eligible, the income limit for disabled veterans and their surviving spouses is removed, and a surviving spouse may carry the exemption to a new home by filing with the county assessor within 60 days. That is handled by the assessor, not on the income tax return. Withholding is unchanged: Form A-4 still takes a flat percentage of wages, and the 2.0% default under-withholds at a 2.5% rate for anyone whose deductions are small.