Updated October 5, 2026. Quick answer: Yes. Arizona taxes taxable income at a flat 2.5%, which the booklet calls a “New Tax Rate of 2.5% for All Income Levels and Filing Status”. Its adjustment lines treat interest as income: “interest from U.S. Government obligations” is subtracted and non-Arizona municipal interest is added.
How Arizona treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate |
| 2025 rate | 2.5% |
| Municipal bonds | Add back “Enter the amount of interest income from non -Arizona municipal bonds”; “received from Arizona municipal bonds that are exempt from Arizona income tax” stay out |
| U.S. obligations | A.R.S. 43-1022 subtracts “Interest income received on obligations of the United States” |
| Mortgage-agency bonds | The booklet says interest on Fannie Mae and Ginnie Mae bonds is taxable by Arizona |
A $20,000 example
Dividends and interest of $20,000 that are all taxable are taxed at 2.5%, computed as $20,000 x 2.5% = $500.
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. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Arizona taxes capital gains, whether Arizona taxes pensions, how Arizona taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 Arizona Form 140 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.