Updated October 5, 2026. Quick answer: Yes. Arizona taxes annuity income at a flat 2.5% rate, which the booklet calls a “New Tax Rate of 2.5% for All Income Levels and Filing Status”. The only subtractions the booklet prints are for government pensions (up to $2,500 per taxpayer) and uniformed-services retired pay (100%).
State retirement-income forms, line by line: Arizona Form 140 line 29a.
How Arizona treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate; subtractions only for government and uniformed-services pensions |
| 2025 rate | 2.5% |
| Government pensions | A.R.S. 43-1022 lists “Benefits, annuities and pensions in an amount totaling not more than $2,500” from U.S. government and Arizona state or local government sources |
| Uniformed-services retired pay | “you may subtract 100% of the amount you received.” |
| Private annuities | No comparable subtraction is printed in the documents read |
A $24,000 example
A private annuity paying $24,000 a year is taxed at 2.5%, computed as $24,000 x 2.5% = $600.
A government pension of $24,000 a year after the $2,500 subtraction is taxed on $21,500, and ($24,000 minus $2,500) x 2.5% = $537.50.
What changes in 2026
The 2025 booklet is the latest Arizona document read, and it prints no 2026 rate.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Arizona taxes pensions, how Arizona taxes retirement income, annuity income tax by state, how a surrendered annuity is taxed, and pension and annuity decisions.
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Answer againSources
- 2025 Form 140 Arizona Resident Personal Income Tax Booklet (Arizona Department of Revenue): https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140Booklet.pdf
- A.R.S. 43-1022 Subtractions from Arizona gross income (Arizona Legislature): https://www.azleg.gov/ars/43/01022.htm
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.