Vetoed by Governor Katie Hobbs

Vote Smart's Synopsis:

Vote to pass a bill that amends Arizona state tax rates to align with those set in the federal "One Big Beautiful Bill Act" (HR 1 of 2025).

Highlights:

• Expands the list of items subtracted from an individual’s state gross income to determine their adjusted gross income to include the following (Sec. 5):

• Tips;

• Overtime compensation;

• The amount of a distribution from an account established under Section 530A of the Internal Revenue Code;

• The amount of child and dependent care expenses paid by the taxpayer that exceeds the amount of federal credit they received;

• Authorized amounts distributed from a pension or retirement account; and

• Up to $6,000 that is contributed to a retirement account and not deducted from federal adjusted gross income.

• Specifies that for individuals whose state gross income is $75,000 or more, the total amount of retirement account contributions that may be subtracted to calculate adjusted gross income is reduced by 6% (Sec. 6).

• Establishes the optional standard deduction for Arizona as the same amount of the federal basic standard deduction determined by the Internal Revenue Code for the taxpayer’s filing status (Sec. 7).

• Requires the standard deduction for Arizona to be increased for taxable years beginning with 2026 by the total amount of a taxpayer’s charitable contributions, up to $1,000 for an individual or $2,000 for a married couple filing jointly (Sec. 7).

• Authorizes individuals to, in lieu of the amount of the federal itemized deduction for state and local taxes, deduct up to $10,000 of that amount for state and local taxes (Sec. 8).

• Increases the tax credit for taxpayers with dependents under the age of 17 from $100 to $125 per dependent (Sec. 9).

• Establishes the state of Arizona’s election to participate in the federal tax credit established by Section 25F of the Internal Revenue Code for individuals who make qualified contributions to scholarship granting organizations (Sec. 10).

• Specifies that the list of organizations that qualify as scholarship granting organizations will be published by the U.S. Secretary of the Treasury and updated annually (Sec. 10).

• Specifies that this Act applies retroactively to taxable years beginning with 2025 (Sec. 11).

Full Bill Text

Vote Smart's Synopsis:

Vote to pass a bill that amends Arizona state tax rates to align with those set in the federal "One Big Beautiful Bill Act" (HR 1 of 2025).

Highlights:

• Expands the list of items subtracted from an individual’s state gross income to determine their adjusted gross income to include the following (Sec. 5):

• Tips;

• Overtime compensation;

• The amount of a distribution from an account established under Section 530A of the Internal Revenue Code;

• The amount of child and dependent care expenses paid by the taxpayer that exceeds the amount of federal credit they received;

• Authorized amounts distributed from a pension or retirement account; and

• Up to $6,000 that is contributed to a retirement account and not deducted from federal adjusted gross income.

• Specifies that for individuals whose state gross income is $75,000 or more, the total amount of retirement account contributions that may be subtracted to calculate adjusted gross income is reduced by 6% (Sec. 6).

• Establishes the optional standard deduction for Arizona as the same amount of the federal basic standard deduction determined by the Internal Revenue Code for the taxpayer’s filing status (Sec. 7).

• Requires the standard deduction for Arizona to be increased for taxable years beginning with 2026 by the total amount of a taxpayer’s charitable contributions, up to $1,000 for an individual or $2,000 for a married couple filing jointly (Sec. 7).

• Authorizes individuals to, in lieu of the amount of the federal itemized deduction for state and local taxes, deduct up to $10,000 of that amount for state and local taxes (Sec. 8).

• Increases the tax credit for taxpayers with dependents under the age of 17 from $100 to $125 per dependent (Sec. 9).

• Establishes the state of Arizona’s election to participate in the federal tax credit established by Section 25F of the Internal Revenue Code for individuals who make qualified contributions to scholarship granting organizations (Sec. 10).

• Specifies that the list of organizations that qualify as scholarship granting organizations will be published by the U.S. Secretary of the Treasury and updated annually (Sec. 10).

• Specifies that this Act applies retroactively to taxable years beginning with 2025 (Sec. 11).

Full Bill Text