Arizona Payroll Tax Nonpayment Emergency Checklist

Arizona Payroll Tax Nonpayment Emergency Checklist

Introduction

Payroll tax nonpayment in Arizona occurs when an employer fails to remit withheld income taxes to the state by the required deadline. These taxes represent funds withheld from employee paychecks and held in trust by the employer until deposited with the state.

The Arizona Department of Revenue administers withholding tax collections, while the Arizona

Department of Economic Security handles unemployment insurance taxes through a separate system with distinct filing requirements and forms. Missing a payment deadline triggers enforcement and collection actions, including liens, wage garnishment, and property seizure.

What This Issue Means

This issue means that withheld income taxes have not been submitted to the state by the filing deadline. The state records missed payments as delinquent accounts, which triggers notices, penalty calculations, and collection activity.

Why the State Issues Notices

Arizona requires payroll tax deposits on specific schedules because these funds are held in trust for employees and the state. The deposit schedule depends on the employer’s prior four-quarter average withholding amount, not on the employer's business classification.

Arizona Withholding Tax Deposit Schedules

The state assigns deposit schedules based on mathematical thresholds. Businesses whose prior four-quarter average is less than $200 and who meet additional criteria may deposit annually.

Quarterly deposits are required when the prior four-quarter average exceeds $200 but does not exceed $1,500. Those with a previous four-quarter average exceeding $1,500 must deposit

Arizona withholding at the same time they make federal withholding deposits.

What Happens When Notices Are Ignored

Ignoring these notices allows penalties and interest to continue accumulating on the unpaid balance. Collection actions may include filing a tax lien against business or personal property, initiating wage garnishment, or offsetting other state payments.

Bank account levies require financial institutions to hold funds for twenty-one days before sending the money directly to the department. A wage levy holds a portion of earned wages based on an allowance per dependent and remains in effect until the entire amount owed is paid in full.

Criminal Violations and Trust Fund Taxes

Criminal prosecution under Arizona Revised Statutes Section 43-416 requires proof that the employer fraudulently appropriated or secreted trust fund taxes with fraudulent intent. Criminal liability requires fraudulent intent beyond mere nonpayment or collection failure.

What This Does Not Mean

Receiving a nonpayment notice does not mean the business will immediately lose its license or face criminal charges. A notice begins the collection process and provides an opportunity to respond, make payment, or establish a payment arrangement.

Steps to Take After Receiving a Nonpayment Notice

1. Locate and review the notice from the state, noting the tax period or quarters involved, the amount due, any penalties and interest listed, and the deadline for response.

2. Verify that your business tax account number matches the records in your payroll system and check your records for payroll tax deposits made during the period in question.

3.

Determine whether deposits were processed but not received by the state by checking bank statements to confirm the date and amount of any tax deposits made.

4. Calculate the total amount due by noting the unpaid tax amount shown on the notice and identifying any penalties and interest listed.

5. Respond to the notice in writing by contacting the department using the phone number or address listed, providing your business name, tax account number, case number, and the specific notice date.

6. Provide documentation of payment if applicable by gathering bank statements, cancelled checks, wire transfer confirmations, or receipts from the deposit.

7. Request clarification on disputed amounts if the amount due is unclear or if you believe the notice contains an error.

8. Assess current cash flow and business resources to determine whether immediate full payment is possible, gathering documentation of business income, expenses, and current obligations if you plan to request a payment plan.

9. Ask the department whether a payment plan is available and inquire about the terms of any available plan, including monthly payment amounts and total duration.

10. Submit a written request for a payment plan if you are unable to pay in full, including your business name, tax account number, the notice case number, and the amount you can pay monthly.

11. Monitor for follow-up notices from the state after submitting a response or payment, and note any deadlines mentioned in follow-up correspondence.

12. Resume payroll tax deposits on the schedule assigned to your business account and confirm the correct remittance address, account number, and payment method with the department.

What Happens After Completion

The state processes submitted information and may send an acknowledgment. Payment received is applied to the unpaid balance, and the state issues a receipt or updated account statement.

Common Mistakes to Avoid

Missing response deadlines accelerates collection action because many notices include a specific response date. Submitting incomplete information or providing partial documentation can delay resolution and increase penalties.

Payroll tax debt does not expire or disappear on its own, and penalties and interest continue to accumulate. Confirm the exact remittance address and account number before sending payment to avoid paying the wrong entity.

Facing State Tax Enforcement Action?

If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.