State guide · Arizona · 2026 rules

S corporation in Arizona: what the election changes

Arizona adds little to the S-corp math. The business files its own state return, and your salary comes under unemployment tax.

Updated October 24, 202612 official sources

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You’ll need: last year’s Schedule C (line 31) and the W-2 from any job you also hold. Everything else starts at a typical value you can change.

State where the business is Each state treats the election differently. The check shows only the questions that matter there.

Net profit for the year, before paying yourself Your business's profit after expenses. Money you take out for yourself does not lower it.

Where do I find this?

Schedule C, line 31 (“Net profit or (loss)”) on last year’s return.

For this year: sales minus business expenses so far, scaled to a full year. Owner draws are not an expense.

Salary you would pay yourself as an S corporation What you would pay yourself through payroll. The IRS expects a reasonable salary for the work you do.

Where do I find this?

No form shows this yet: you choose it. It should be about what you would pay someone else to do your work.

The salary finder just below shows what employees in your job earn in your state or metro area. What the IRS looks at.

Salary finder: what people in your job earn (BLS)

Your job Pick the job closest to what you do most of the week.

Area Pick your metro area if it is listed. Pay varies by area.

Another job I also earn W-2 wages from a job outside this business

Typical values: change them if you know yours

Payroll service, per year typical value Published one-person prices: $492 to $684 a year (October 2026).

Where do I find this?

Your payroll provider’s price page or quote, for one employee: you. Published prices compared.

Extra tax-prep cost for the S-corp return typical value A survey average: the fee for Form 1120-S minus the fee for Schedule C (2020 fees).

Where do I find this?

Ask your preparer what a Form 1120-S (the S corporation’s own return) would cost, then subtract what you pay now for Schedule C.

Your top federal income tax rate Not sure? Keep 22%. It changes line 5 only.

Where do I find this?

Your taxable income is on Form 1040, line 15. Find the rate for that income and your filing status in the IRS rates and brackets table.

Filing status Changes the result only above $200,000 of earnings ($250,000 if married filing jointly, $125,000 if married filing separately).

Where do I find this?

The box checked under Filing Status at the top of your Form 1040.

Choose a state and enter your profit and salary to see the comparison.

The state

Arizona follows the federal S election with no state form. An LLC that elects files Arizona Form 120S, due the 15th day of the third month after year end. Arizona puts no income tax and no minimum tax on an S corporation; you report its income on your own Arizona return, as you do today.

An LLC that elects stays an LLC with the Arizona Corporation Commission. Its filings there do not change with the federal tax election.

Unemployment tax on your salary

Today Arizona treats a single-member LLC like a sole proprietorship, and its owner is not reportable for unemployment insurance. Once the LLC elects corporate tax treatment, Arizona treats it as a corporation, and your salary is reportable.

A new employer pays 2.0% on the first $8,000 of each worker’s wages for at least 2 calendar years.

The optional pass-through entity tax

A one-owner S corporation can elect Arizona’s pass-through entity tax by filing its Form 120S. The rate is 2.5%, the same as Arizona’s individual rate, and you get a credit for your share. The state total does not change; the effect is on the federal deduction for state taxes. The calculator leaves it out.

Worked examples

A single-member LLC owner, single filer, 22% federal bracket, default payroll and return costs. The figure is total tax and added costs as an S corporation compared with staying as you are.

Profit / salary	No local tax
$80,000 / $45,000	$803 lower
$120,000 / $60,000	$3,205 lower
$200,000 / $90,000	$7,985 lower

Starting payroll in Arizona

One Arizona Joint Tax Application (JT-1/UC-001) registers you for state withholding with the Department of Revenue and for unemployment insurance with the Department of Economic Security.

New hire paperwork for Arizona

Other states

All state guides and the map

Sources

Federal figures: IRS Publication 15 (2026), Schedule SE and Form 2553 instructions. Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.

An estimate from public rules, not tax advice.

Ready to elect? See the Form 2553 steps.

Electing S corp status