This tax package raises Arizona's standard deduction starting with 2025 tax years, lets taxpayers subtract federally deducted tips and overtime, raises the child credit, widens property tax exemptions for some disabled veterans and their surviving spouses, and changes many business, insurer and local-government tax rules.
Official title: taxation; omnibus; 2026-2027
- September 12, 2026
- Applies to tax years starting in 2025: Higher standard deduction, federal tax code update, and subtractions for tips, overtime, the federal qualified-individual deduction and car loan interest
- Applies to tax years starting in 2026: Dependent credit increase, charitable and state-and-local-tax deduction changes, research credit changes, and repeal of several premium and income tax credits
- Tax years starting in 2027: Property tax exemption changes for veterans, surviving spouses and others
- July 1, 2026 through June 30, 2029: Pause on new computer data center applications and tax relief
- From July 1, 2026: Higher statewide caps on manufacturing infrastructure payments
- From April 9, 2026: Leftover Pinal County transportation excise tax money held until the legislature appropriates it
- Calendar year 2027: Employers' 3.15% unemployment contribution share sent to new operating fund
- Agreements and certifications made on or after the law's effective date: 75% cost limit, higher investment thresholds, 5% local funding share, jobs analysis and posting rules for manufacturing infrastructure agreements
What changes
BeforeStandard deduction of $12,200 for single or married filing separately, $18,350 for head of household and $24,400 for married filing jointly, before inflation adjustment.
NowStandard deduction of $15,750, $23,625 and $31,500, still adjusted for inflation. This applies to tax years starting in 2025.
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NowFor tax years starting in 2025 and later, taxpayers may subtract qualified tips and qualified overtime pay deducted under federal law, and an amount deducted for a 'qualified individual' under a federal tax code section. Qualified car loan interest deducted under federal law may be subtracted for 2025 tax years only. Starting in 2026, child and dependent care costs above the federal credit and distributions from federal section 530A accounts may also be subtracted, to the extent not already excluded.
BeforeDependent tax credit of $100 for each dependent under 17, reduced at higher incomes.
Now$125 for each dependent under 17, with the same phase-out at higher incomes, starting with 2026 tax years. The credit for dependents 17 and older stays at $25.
BeforeTaxpayers taking the standard deduction could add 25% of the charitable deductions they would have itemized, a percentage adjusted for inflation. Itemizers had no separate state limit on the deduction for state and local taxes.
NowStarting in 2026, standard-deduction filers may add their charitable contributions, up to $1,000 (single or married filing separately) or $2,000 (married filing jointly). Itemizers may deduct up to $10,000 for state and local taxes.
BeforeOnly veterans with a 100% service-connected disability rating got a full property tax exemption on their primary residence. A surviving spouse could keep it only if the home was already receiving it and the spouse did not remarry.
NowStarting with 2027 tax years, veterans rated totally disabled based on individual unemployability also qualify. Widows or widowers of veterans eligible for the full exemption get a full exemption on their primary residence. Widows or widowers of veterans with partial disabilities get a $4,188 exemption, reduced by the veteran's disability percentage. Anyone with an exemption who moves must file a transfer form within 60 days.
Who it affects
- Arizona individual income taxpayers
- Workers who receive tips or overtime pay
- Families with dependents under 17
- Disabled veterans and widows or widowers of disabled veterans who own a primary residence
- Businesses claiming research, pollution control or other repealed credits, including small businesses that used refundable research credits
- Insurers that claimed the repealed premium tax credit
- Taxpayers donating to school tuition organizations
- Employers paying unemployment insurance contributions in 2027
- Manufacturing facilities and the cities, towns and counties that build infrastructure for them
- Computer data center developers
- Arizona Department of Revenue, county assessors, Arizona Commerce Authority and Department of Economic Security
What you need to do
Most people need to do nothing special and claim the changes on their tax returns. A widow or widower claiming the new surviving-spouse property tax exemption must file an affidavit with the county assessor and give proof of the veteran spouse's disability rating or unemployability status. Anyone with one of these property tax exemptions who moves to a new primary residence must file a transfer form with that county's assessor within 60 days.
What the law doesn't answer
- How much individual taxpayers will save or owe under the changes
- What the federal 'qualified individual' deduction under section 151(d)(5)(C) covers
- Whether taxpayers who already filed 2025 returns must amend them to get the higher standard deduction or new subtractions
- Why the school tuition organization credit cap drops from $135,000,000 to $110,000,000
- How the legislature will use the leftover Pinal County transportation excise tax money
- Why new computer data center applications are paused
This summary describes the law as enacted. Later laws, court rulings or referendum petitions can change the picture. Check the official text for the current wording.