The proposed bill aims to update Arizona tax statutes by aligning them with the U.S. Internal Revenue Code (IRC) as of January 1, 2026, replacing the current definition that references the IRC as of January 1, 2025. It introduces new tax subtractions for qualified tips, overtime compensation, and certain retirement account distributions, while also modifying existing deductions and increasing the Dependent Tax Credit from $100 to $125 per dependent. The bill further establishes Arizona's participation in federal tax credits for contributions to school granting organizations (SGOs), detailing the certification and administration requirements for these organizations.

In addition to these updates, the bill allows for increased charitable contribution deductions and permits deductions for state and local taxes. It also replaces the Arizona-specific standard deduction with a coupling to the federal standard deduction and caps pension distributions and Roth IRA contributions. The new provisions will be effective for taxable years beginning after December 31, 2024, and the bill mandates compliance with federal regulations for administering the SGO credit, ensuring that the changes enhance tax benefits for individuals while maintaining conformity with federal tax law.

Statutes affected:
Introduced Version: 42-1001, 43-105, 43-301, 43-323, 43-1022, 43-1030, 43-1041, 43-1042, 43-1073.01, 43-1012, 43-1072, 43-1072.01, 43-1072.02, 43-1073, 43-1021, 43-1023, 43-309, 15-1628, 15-1451, 43-1333, 43-1025, 43-1027, 43-1029, 111-5, 111-92, 41-1518, 20-1691, 101-336, 43-1024, 43-1028
Senate Engrossed Version: 42-1001, 43-105, 43-301, 43-323, 43-1022, 43-1030, 43-1041, 43-1042, 43-1073.01, 43-1012, 43-1072, 43-1072.01, 43-1072.02, 43-1073, 43-1021, 43-1023, 43-309, 15-1628, 15-1451, 43-1333, 43-1025, 43-1027, 43-1029, 111-5, 111-92, 41-1518, 20-1691, 101-336, 43-1024, 43-1028