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Employers - Who Pays Unemployment Taxes?

Who is required to pay unemployment taxes?

In Arizona, most employers must pay unemployment taxes. Taxes are required by law. Taxes apply to the first $8,000 of each employee’s wages in a calendar year. (Before January 1, 2023, the amount was $7,000.)

An employer can be:

  • An individual
  • A partnership
  • A corporation
  • A limited liability company (LLC)
  • Any other business where someone works

You are required to pay unemployment taxes if you meet any of the following conditions:

  • Pay $1,500 or more in wages during a calendar quarter
  • Have at least one worker for part of a day in 20 different weeks in a calendar year
  • Take over a business that already pays unemployment taxes
  • Must pay Federal Unemployment Tax for any reason
  • Must pay Federal Unemployment Tax because you employed any individuals in any other state
  • Own or control two or more Arizona businesses that meet any of these rules
  • Pay domestic or household workers $1,000 or more in a calendar quarter
  • Meet either of these agricultural thresholds:
    • Pay agricultural workers $20,000 or more in a calendar quarter
    • Have at least 10 agricultural workers for part of a day in 20 different weeks in a year
  • Are a nonprofit organization exempt under section 501(c)(3) of the Internal Revenue Code and employ four or more individuals for some part of a day in each of 20 different weeks in a calendar year
  • Choose to provide unemployment coverage even if not required
  • Are a leasing or temporary services business which leases or provides workers to other businesses
  • Are an Indian tribe, or are any subdivision, subsidiary, or business enterprise wholly owned by such Indian tribe

If you meet any of these rules during a calendar year:

  • You must report all gross wages paid that year.
  • You must pay taxes on all taxable wages for that year.
  • You must continue paying taxes each year until your account is officially closed.

What is a successor employer?

You are a successor employer if you take over all or part of a business that was required to pay unemployment taxes in Arizona.

As a successor:

  • You must pay unemployment taxes right away.
  • This applies no matter how much you pay in wages or how many workers you have.

As a successor, you may also take into account wages paid by the former owner in determining the amount of wages on which you must pay taxes during the year in which you acquired the business. For example, if the former owner has paid wages in excess of $8,000 ($7,000 before January 1, 2023) to a worker you continue to employ, you will not have to pay taxes on any additional wages you pay this worker in the year you acquire the business.

Acquisition of an entire Arizona business

When you acquire an entire Arizona business or substantially all of the assets thereof, and continue to operate it for purposes of liability, you are a successor to a predecessor’s business.

What this means for you

  • You will receive the same tax rate as the former owner.
  • You will get a new account number.
  • You will take over the former owner’s experience rating account.
  • The experience account includes past wages and taxes paid.

Benefit charges

Unemployment benefits based on wages paid by the former owner may be charged to your account.

Unpaid taxes

  • Closing the former owner’s account does not remove their responsibility for unpaid taxes, interest, or penalties.
  • However, you may also become responsible for unpaid taxes owed by the former owner.

Before buying a business, you can ask the former owner to get a letter of good standing. This helps you check if any unemployment taxes are still unpaid.

Acquisition of a portion of an Arizona business

If you take over part of a business and keep operating it, you are not automatically given the former owner’s tax rate or experience rating account.

To receive part of the experience rating and tax rate:

Your account may then be charged for a portion of the unemployment benefits paid to the former owner's employees.

Termination of Unemployment Insurance Coverage and Tax Account

Once you are required to pay unemployment insurance taxes, you must continue until your coverage is officially ended.

You may end your coverage if you meet both of the following conditions:

  • You send a written request between January 1 and March 31.
  • You did not meet any rules that require you to pay unemployment taxes in the previous calendar year.

Important Details

  • If a successor employer buys your business, your experience rating account will transfer to them.
  • Ending your coverage does not remove your responsibility for unpaid taxes.
  • If you later meet the rules that require unemployment taxes again:
    • You must apply for a new account.
    • You cannot reopen your old account.
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