Arizona Household Employer Guide 2026
Your household employee — a nanny, caregiver, housekeeper, or anyone who works in your Arizona home — is a W-2 employee. Arizona is relatively straightforward for household payroll: voluntary state income-tax withholding, voluntary workers' comp, Prop 206 paid sick time, Arizona DES unemployment filings, and a $15.15 statewide minimum wage.
Start Payroll Free →When the rules apply
Arizona household employers mainly need to watch federal payroll thresholds and the $1,000 quarterly Arizona unemployment threshold.
How Nest Payroll handles this
Each pay period, you pay your employee the net amount directly — through Venmo, Cash App, Zelle, your banking app, or by check. Nest generates the pay stub, calculates payroll taxes, and registers you with AZ DES once the $1,000 quarterly threshold applies.
Federal taxes — quarterly EFTPS payments
At the end of each federal quarter (March, May, August, December), Nest debits your bank account for the federal taxes owed — FUTA, employer + employee FICA, and any federal income tax withheld — and remits them to the IRS via EFTPS. You'll get a confirmation email a week beforehand. Your money stays in your account until taxes are actually due. We don't hold withholdings on your behalf. At year-end, Schedule H on your Form 1040 reconciles everything Nest already paid through the year; Nest produces a signature-ready version.
Arizona state taxes — quarterly UI filings
Each quarter, Nest files the UC-018 / UC-020 with AZ DES for state unemployment insurance — an employer-paid contribution, not withheld from your employee.
Setup checklist (before they start)
Workers' Compensation Insurance — voluntary in AZ
Arizona is unusual: workers' compensation insurance is NOT required for household employers in AZ, regardless of hours worked or wages paid. Domestic workers in private homes are specifically exempt from the AZ Workers' Compensation statute under A.R.S. §23-901.
That said, voluntary coverage is still worth considering. Workers' comp can protect you if your employee is injured on the job and gives the employee a predictable benefits path without a lawsuit.
Two paths to coverage
- Homeowner's or renter's insurance rider — call your insurance company first. Many AZ policies include or can add household-employee coverage as a low-cost rider.
- Standalone household-employer policy — available from AZ-licensed private carriers if your homeowner's policy can't cover it.
Form I-9 (Employment Eligibility)
Federal law requires all employers to verify employment eligibility using Form I-9. Complete this before your household employee's first day of work.
Federal W-4 + Form A-4 (optional Arizona withholding)
The federal W-4 determines how much federal income tax to withhold from each paycheck. Arizona uses Form A-4 to set state withholding. AZ has a flat 2.5% rate.
Arizona New Hire Reporting
Arizona requires all employers to report newly hired and rehired employees to the Arizona New Hire Reporting Center within 20 days of the hire date.
You'll provide your employee's name, address, SSN, hire date, and your contact information.
Required Employment Posters
Arizona employers must provide a number of state-mandated notices to their workers:
Written Work Agreement
Arizona state law doesn't require a written employment agreement, but a written contract prevents misunderstandings about hours, duties, PTO, and house rules.
Build a free contract with our editable template: Nest Payroll Household Employee Contract Builder — fill it out and download as a PDF.
Pay & compensation
Minimum Wage — $15.15/hr (2026)
Effective January 1, 2026, Arizona's minimum wage is $15.15 per hour under Proposition 206 (the Fair Wages and Healthy Families Act), up from $14.70 in 2025. The rate is indexed annually each January 1 to the Consumer Price Index.
| Where work is performed | Hourly Rate |
|---|---|
| Statewide (default) | $15.15 |
| Flagstaff (highest in state — local ordinance) | $17.85 |
| Tipped employees (cash wage) | $12.15 + tips |
| Federal minimum wage (FLSA floor) | $7.25 |
Overtime
Arizona follows the federal Fair Labor Standards Act (FLSA) standard: 1.5× the regular hourly rate for all hours worked over 40 in a 7-day workweek. AZ has no state-specific overtime rules.
| Condition | Rate |
|---|---|
| Live-out, more than 40 hours in a workweek | 1.5× hourly |
| Live-in employees (any hours) | Exempt from overtime |
| Work performed on a holiday or weekend | No premium required |
"No Tax on Overtime" Deduction (2025–2028)
The federal overtime deduction may let household employees deduct the premium portion of qualifying overtime pay on their personal tax return. This is a federal income-tax rule; it does not change how you calculate overtime, FICA, Arizona withholding, or payroll records.
Pay Frequency
Household employees are virtually always hourly under federal FLSA — even when you've agreed to pay a "salary," it's treated as a wage covering a fixed number of hours per week, with overtime owed on hours past 40. Under A.R.S. §23-351, employers must pay employees at least twice per month, on regular paydays no more than 16 days apart. Daily, weekly, and bi-weekly are all common for household payroll. Monthly pay is not allowed for hourly workers.
Whatever cadence you pick, designate the regular paydays in writing at hire and stick to them — even a simple email or text confirming "you'll be paid every Friday" satisfies the requirement.
Mileage Reimbursement
Arizona does not require mileage reimbursement, but you must reimburse necessary work-related driving expenses if those costs would otherwise reduce your employee's wages below the minimum wage. Most AZ employers use the IRS standard rate:
$0.725 per mile (2026)
Common reimbursable household-employee miles: driving children to activities, running household errands, taking a senior client to medical appointments. (Commuting to/from work doesn't count.)
Paystub Requirements
Under A.R.S. §23-353 and Prop 206 implementing rules, each pay period you must provide your employee with a written statement showing hours worked, rate of pay, gross wages, deductions itemized, net wages, and the amount of earned paid sick time accrued and used. Records must be retained for at least 4 years.
Arizona payroll is simpler than many states, but it still has to be done right.
Nest Payroll handles federal and Arizona payroll, EPST tracking, W-2s, and Schedule H — starting at $42/mo. 14-day free trial.
Time off & leave
Earned Paid Sick Time (Prop 206) — 24 hours/year for households
Effective July 1, 2017, Arizona's Proposition 206 / A.R.S. §23-372 entitles every Arizona employee — including domestic workers — to earned paid sick time. Coverage and hours depend on employer size:
| Employer Size | Annual Cap | Accrual |
|---|---|---|
| Small employer (<15 workers, every household) | 24 hours | 1 hour per 30 worked |
| Standard (15+) | 40 hours | 1 hour per 30 worked |
Permitted uses: employee or family member illness, medical appointments, time related to domestic violence or sexual assault, public health emergencies. Carryover is allowed; alternatively, employers can pay out unused EPST at year end and start fresh.
Accrual vs. frontloading — and why frontloading is simpler
Frontloading is generally better for household employers because it avoids per-hour accrual tracking and keeps year-end balances simple. Prop 206 does not require payout of unused sick time at separation.
Vacation & PTO
Arizona does not require paid vacation. If you offer it, document the policy in writing — under AZ law, vacation pay is enforceable to the extent your written policy states it will be paid out at separation.
Upon departure
Final wages — discharge: Under A.R.S. §23-353, when an employer discharges an employee, all unpaid wages are due within 7 working days, or by the end of the next regular pay period — whichever is sooner.
Final wages — voluntary quit: Wages are due by the next regular payday following resignation.
Unused vacation/PTO: Vacation pay is enforceable to the extent your written policy states it will be paid.
Final W-2: Provide the federal Form W-2 by the regular January 31 deadline (or earlier if requested by the former employee).
Year-end forms
Your responsibilities
- Hand the W-2 to your household employee by January 31 — Nest produces this; you deliver it
- Attach Schedule H to your Form 1040 by April 15 — Nest produces a signature-ready version
What Nest handles for you
- Quarterly federal tax payments to the IRS via EFTPS
- W-3 + Copy A of W-2 filed with the Social Security Administration
- Quarterly UC-018 / UC-020 filings with AZ DES once registration applies
Tax breaks for household employers
Paying your household employee legally unlocks meaningful federal tax breaks that often offset most of your employer-side payroll tax cost.
Dependent Care FSA (DCFSA)
For 2026, the federal max contribution is $7,500 (married filing jointly) — up significantly from prior years under the OBBBA. Note: your employer's specific plan may still cap at $5,000.
Child & Dependent Care Tax Credit
Up to 50% of qualifying care expenses for 2026 — up from 35% in 2025. Capped at $3,000 of expenses for one qualifying child or $6,000 for two or more.
Resources & free tools
Ready to pay your Arizona household employee legally?
Nest Payroll handles EIN setup, AZ DES registration, payroll calculations, and quarterly tax filings — all automatically. 14-day free trial.
Disclaimer: The information on this page is general in nature. This is not tax, legal, benefits, financial, or HR advice. Rules and regulations change over time. Workers' compensation, Prop 206, and Flagstaff city ordinance requirements can be complex — consult an attorney, financial advisor, or licensed insurance broker for your specific situation.