Arizona · Qualified Business Income (QBI/199A) Deduction
Qualified Business Income (QBI/199A) Deduction in Arizona (2026)
Deduct up to 20% of qualified business income from pass-through entities. Arizona has a flat 2.5% income tax, so a Arizona filer's combined marginal rate on the next dollar at $72,581 of income is about 24.5% (22% federal + 2.5% AZ).
2026 savings example for Arizona
Planning estimate for a single filer earning $72,581 (Arizona median household income in LevyIO's state dataset) who removes $5,000 from taxable income. Federal tax uses the 2026 IRS brackets after the $16,100 standard deduction; AZ tax uses the state brackets in LevyIO's dataset and assumes the state follows the federal treatment.
Estimated total savings
$1,225
Federal savings
$1,100
$7,138 → $6,038 · 22% bracket
AZ state savings
$125
$1,450 → $1,325 · 2.5% marginal
Combined marginal rate
24.5%
≈ $245 saved per $1,000 deducted
Federal × Arizona marginal rates (2026, single)
Gross-income ranges include the federal standard deduction. The AZ column is the state marginal rate at the midpoint of each range. The last column is the tax saved per $1,000 deducted at that combined rate.
| Federal bracket | Gross income (single) | AZ marginal | Combined | Per $1,000 |
|---|---|---|---|---|
| 10% | $16,100 - $28,500 | 2.5% | 12.5% | $125 |
| 12% | $28,500 - $66,500 | 2.5% | 14.5% | $145 |
| 22% | $66,500 - $121,800 | 2.5% | 24.5% | $245 |
| 24% | $121,800 - $217,875 | 2.5% | 26.5% | $265 |
| 32% | $217,875 - $272,325 | 2.5% | 34.5% | $345 |
| 35% | $272,325 - $656,700 | 2.5% | 37.5% | $375 |
| 37% | Over $656,700 | 2.5% | 39.5% | $395 |
Eligibility & forms
Pass-through business owners: sole proprietors, S-corps, partnerships
- Qualified business income
- Income below threshold or specified service test
- W-2 wage/property limits may apply
Federal forms: Form 8995, Form 8995-A
Arizona filing notes
Arizona's flat 2.5% rate simplifies planning. Use the 25% capital gains subtraction on investment income. Arizona offers generous tax credits for charitable contributions and school tuition organizations.
Common mistakes: Specified service business over threshold; Not understanding phase-out rules.
Frequently asked questions
How much can the Qualified Business Income (QBI/199A) Deduction save a Arizona taxpayer in 2026?
In LevyIO's example, a single filer with $72,581 of income (the Arizona median household income in our state dataset) who removes $5,000 from taxable income saves about $1,100 in 2026 federal tax (22% marginal bracket) plus about $125 in Arizona tax (2.5% state marginal rate), roughly $1,225 combined. It is a planning estimate computed from the 2026 IRS brackets and LevyIO's AZ bracket data, not a survey figure.
What is the Arizona income tax rate for 2026?
Arizona has a flat 2.5% income tax. The AZ standard deduction in LevyIO's dataset is $14,600 single / $29,200 married. Flat 2.5% rate since 2023. 25% capital gains subtraction. Generous charitable contribution credits.
Who qualifies for the Qualified Business Income (QBI/199A) Deduction in Arizona?
Pass-through business owners: sole proprietors, S-corps, partnerships. The federal rules are the same in every state; the requirements are: Qualified business income; Income below threshold or specified service test; W-2 wage/property limits may apply. Arizona filers should confirm on the AZ return whether the state follows the federal treatment.
Which forms do I file to claim the Qualified Business Income (QBI/199A) Deduction?
Federal: Form 8995, Form 8995-A. Arizona: check the Arizona Department of Revenue instructions for the matching state schedule. Common mistakes: Specified service business over threshold; Not understanding phase-out rules.
Qualified Business Income (QBI/199A) Deduction in other states
- Full Qualified Business Income (QBI/199A) Deduction guide (all states)
- Qualified Business Income (QBI/199A) Deduction in California
- Qualified Business Income (QBI/199A) Deduction in Colorado
- Qualified Business Income (QBI/199A) Deduction in Utah
- Qualified Business Income (QBI/199A) Deduction in Georgia
- Qualified Business Income (QBI/199A) Deduction in Illinois
Sources
Reviewed 2026-09-17. Estimates are educational planning figures computed from the IRS 2026 inflation adjustments and LevyIO's state bracket dataset; they are not tax advice.