Tax Relief or Tax Chaos? Why Every Arizonan Should Care About HB 2785
By: Linley Wilson
On January 15, 2026, the Arizona Legislature transmitted to the Governor Senate Bill (“SB”) 1106, a comprehensive $1.1 billion tax relief plan designed to align Arizona's tax code with federal tax reforms from President Trump's One Big Beautiful Bill. The legislation focused on affordability and would have supported working Arizona families by increasing Arizona's child tax credit, creating a deduction for childcare expenses, and incorporating federal provisions such as no tax on tips or overtime. Governor Hobbs vetoed SB 1106 the next day.
In response, Representative Justin Olson introduced another tax conformity bill, House Bill 2785. HB 2785 would conform Arizona's tax code to the Internal Revenue Code, including all retroactive effective dates from federal tax changes enacted during 2025. If signed by Governor Hobbs, this legislation will directly affect every Arizona taxpayer. If not signed, the consequences will be equally significant—but far less favorable.
What HB 2785 Does
HB 2785 aligns Arizona tax law with major federal tax changes, including provisions that exempt qualified tips and overtime compensation from state income tax, create new deductions for seniors aged 65 and older, permit deductions for qualified vehicle loan interest, and allow taxpayers who take the standard deduction to claim additional charitable contribution deductions. The bill also redefines Arizona's standard deduction to match the federal basic standard deduction.
Why This Bill Matters Now
Arizona has passed tax conformity legislation every year for at least the past two decades. Governors Brewer, Ducey, and Hobbs have all signed conformity bills, typically between February and May following the applicable tax year. The earliest signing in recent history was February 14, 2011; the latest was May 31, 2019.
Notably, the Arizona Department of Revenue has already released tax forms for tax year 2025 that assume full federal conformity. Arizona taxpayers are currently filing returns based on forms that reflect a legal framework that does not yet exist under Arizona law.
The Stakes for Arizona Taxpayers
If Governor Hobbs signs HB 2785, Arizona taxpayers will benefit from meaningful tax relief that Congress intended, including exemptions for tips and overtime, and can file their returns with confidence that the forms match the law.
If Governor Hobbs does not sign HB 2785, taxpayers face a troubling scenario: those who filed in reliance on the Department of Revenue's guidance may be required to submit paper amended returns and pay additional taxes. Working Arizonans—particularly tipped employees, hourly workers earning overtime, and seniors—could lose access to new tax benefits already available at the federal level.
