TUCSON, Ariz.
Tax season kicks off on Monday, January 26, but if you plan to file early, you might want to hold off for a bit. There’s a chance you’ll have to make changes later.
The delay is tied to tax forms that haven’t been updated yet. They can’t be finalized until the state sorts through various tax law changes, and there’s some disagreement between the governor and lawmakers on how to proceed.
Currently, two proposals are being discussed.
One of them, supported by the Republican Party, is SB1106. Governor Hobbs has previously vetoed this. Instead, she’s advocating for a Democratic approach with HB2531, but this hasn’t even been reviewed by the Republican chair yet. It’s just the beginning of the legislative process.
Arizona Democrats are still backing HB 2531. Regarding the proposed extra $6,000 deduction, it’s unclear if they’ll try to override the veto or go for another bill. We’ll update this as things unfold.
Understanding SB 1106
The key difference between the two proposals is that the Republican-backed SB 1106 aligns more with changes to federal tax returns from last year’s “One Big Beautiful Bill” signed by President Trump.
However, SB 1106 doesn’t carry over all provisions from that bill and might even expand on some aspects.
The Joint Legislative Budget Committee (JLBC) highlights the following:
- SB1106 excludes certain provisions present in HR 1, such as:
- An extra $6,000 deduction for seniors aged 65 and older.
- Increased SALT deduction from $10,000 to $40,000.
- Deduction for new car auto loan interest.
On the plus side, SB 1106 introduces additional measures exceeding what’s in HR 1, such as:
- A $6,000 deduction from pension or retirement account distributions for those aged 60 and older.
- A $6,000 deduction for Roth IRA contributions.
- An increase in the dependent tax credit for children under age 17 from $100 to $125.
- A deduction for childcare expenses above what’s allowed in federal credits.
The IRS provides a comprehensive list of updates made by HR1 to the tax law.
While SB 1106 incorporates many of these adjustments, Governor Hobbs’ bill (HB 2531) does not include them all but does introduce some changes related to taxes on tips, overtime, and senior deductions.
Key Differences Between the Bills
- Standard Deduction
- Both proposals aim to double it from $15,750 to $31,500.
- Elderly Deduction
- HB 2531 proposes a $6,000 deduction.
- SB 1106 does not include such deductions.
- Retirement Allowance Deduction
- SB 1106 includes a $6,000 deduction for pension distributions for those aged 60 and older.
- It also allows an additional $6,000 deduction for Roth IRA contributions.
- HB 2531 has no retirement-related deductions.
- Qualified Tips and Overtime Deductions
- Both bills include similar deductions; however, the HB 2531 deductions expire after 2028, while those in SB 1106 would remain until modified by future legislation.
National Budget Costs
The JLBC estimates that HB 2531 could cost the state around $757 million over four years. On the other hand, SB 1106 would nearly double that figure, estimating a cost of about $1.44 billion.
The Arizona Department of Revenue is tasked with preparing the tax forms for filing. The JLBC Note mentions that this process should be wrapped up by November or December, ideally ahead of tax season. Although the forms are ready, they might not align with whichever proposal is chosen, leading to the possibility of needing amended returns for anyone who files with outdated forms.
When Should I File My Taxes?
At this point, it’s still uncertain. It’s wise to seek guidance from a tax professional about your next steps. The tax filing deadline is set for Wednesday, April 15. Just remember, unpaid taxes are due then, but extensions can be requested.
