Comparison•2025 Tax Year•Last verified: January 2026
California vs Arizona: Side Hustle Tax Comparison 2025
Compare California and Arizona taxes for freelancers and gig workers. Arizona's flat 2.5% rate is among the lowest in the nation - see how it compares to California.
California and Arizona are neighboring states with vastly different tax philosophies. Arizona has become increasingly popular with Californians seeking lower taxes and cost of living, ranking among the top 3 destinations for CA out-migration.
While Arizona isn't a zero-tax state like Nevada or Texas, its flat 2.5% income tax rate is one of the lowest in the nation—dramatically lower than California's rates that can reach 13.3%. For side hustlers, this difference is substantial.
**Why This Comparison Matters:**
Arizona consistently ranks among the top 3 destinations for Californians leaving the state. The Phoenix metro area in particular has seen massive growth from CA transplants. Key drivers include:
- **Dramatically lower taxes**: Arizona's flat 2.5% vs California's 1-13.3%
- **Lower cost of living**: Phoenix housing costs roughly 40-50% less than comparable CA metros
- **Proximity**: Same time zone, short flight or drive to CA
- **Growing tech sector**: Phoenix, Scottsdale, and Tempe have emerging tech scenes
- **Year-round sun**: Appeals to remote workers seeking lifestyle change
For side hustlers, moving from CA to AZ can mean saving 4-10% on state taxes while staying relatively close to California.
Side-by-Side Tax Comparison
| Metric | California | Arizona |
|---|---|---|
| State Income Tax Rate | 1% - 13.3% (progressive) | 2.5% (flat) |
| Common Rate for Side Hustlers | 6% - 9.3% | 2.5% |
| State Tax Filing Required | Yes (Form 540) | Yes (Form 140) |
| Federal SE Tax | 15.3% | 15.3% |
| Est. Tax on $12K Side Hustle* | ~$5,453 | ~$4,637 |
| Annual Savings (AZ vs CA)* | — | ~$816 |
| Property Tax (Avg Rate) | 0.71% | 0.62% |
| Sales Tax (State + Avg Local) | 8.82% | 8.40% |
| Distance from LA | — | ~370 miles (Phoenix) |
*Assumes single filer with $60,000 W-2 income + $15,000 net side hustle income. Actual taxes vary based on deductions, filing status, and total income.
California Analysis
**California Tax Analysis for Side Hustlers**
California's progressive tax rates can take a significant bite out of side hustle income, especially when combined with W-2 wages that push you into higher brackets.
**Key California Tax Facts (2025):**
- **Tax Type**: Progressive (9 brackets)
- **Rate Range**: 1% to 13.3%
- **Common Side Hustler Rate**: 6% to 9.3%
- **No Local Income Tax**: Cities don't add additional income tax
**Example**: If you earn $55,000 from your W-2 job and $12,000 from side hustle income (net of expenses) in California:
- Federal SE Tax: ~$1,697
- Federal Income Tax on side income: ~$2,640
- California State Tax: ~$1,116
- **Total Tax on Side Hustle: ~$5,453** (45.4% effective rate)
Arizona Analysis
**Arizona Tax Analysis for Side Hustlers**
Arizona implemented a flat 2.5% income tax rate in 2023, making it one of the most tax-friendly states in the nation for both W-2 workers and self-employed individuals.
**Key Arizona Tax Facts (2025):**
- **State Income Tax**: 2.5% flat rate
- **Tax Type**: Flat
- **Filing Requirement**: Yes, but simple with flat rate
- **No Local Income Tax**: Arizona cities don't levy income tax
**Example**: Same scenario—$55,000 W-2 job and $12,000 from side hustle income (net of expenses) in Arizona:
- Federal SE Tax: ~$1,697
- Federal Income Tax on side income: ~$2,640
- Arizona State Tax: ~$300
- **Total Tax on Side Hustle: ~$4,637** (38.6% effective rate)
**Savings vs California: ~$816/year** on $12,000 of side hustle income.
While not zero like Nevada or Texas, Arizona's 2.5% rate provides significant savings while still funding state services. The state also has lower property taxes and cost of living than California.
Calculate Your Side Hustle Taxes
Use our calculator to see exactly what you'd owe in each state. Try entering your numbers, then switch between California and Arizona to compare.
Which State Is Right for Your Side Hustle?
**California May Be Better If You:**
- Work in CA-centric industries requiring physical presence
- Have Prop 13 protected property with low assessed value
- Value CA's stronger employee/contractor protections
- Prefer coastal climate over desert heat
- Have family or other ties keeping you in CA
**Arizona May Be Better If You:**
- Want significant tax savings while maintaining some state services
- Are comfortable with desert climate (hot summers, mild winters)
- Work remotely or have location-flexible clients
- Are drawn to Phoenix's growing tech/startup scene
- Want lower overall cost of living while staying in the Southwest
**Important Considerations:**
1. **Not zero tax, but close**: Arizona's 2.5% rate isn't zero like Nevada, but it's low enough that the lifestyle and cost-of-living benefits might outweigh the small tax.
2. **California exit still matters**: Like all moves from CA, you must genuinely relocate. The FTB audits former residents regardless of destination.
3. **Extreme summer heat**: Phoenix regularly exceeds 110°F in summer. This is a real lifestyle consideration—many AZ transplants spend summers elsewhere.
4. **Water concerns**: Arizona faces long-term water supply challenges. This could affect property values and living costs in the future.
5. **Growing tech scene**: Phoenix/Scottsdale has attracted significant tech companies. If you're in tech, you may find local networking opportunities.
6. **Lower barrier**: Because AZ has some income tax, the IRS/FTB scrutiny on AZ moves may be less intense than moves to zero-tax states—though CA still audits.
Frequently Asked Questions
How does Arizona's 2.5% rate compare to California for side hustlers?
The difference is substantial. California's rates for typical side hustlers range from 6% to 9.3%, meaning you'd pay 3.5% to 6.8% more in CA. On $20,000 of side hustle income, that's $700-$1,360 more per year in California.
Is Arizona better than Nevada since it still has some services?
It depends on your priorities. Nevada has zero income tax, saving you the full 2.5% Arizona charges. However, Arizona's small tax funds state services, schools, and infrastructure that some find valuable. Arizona also has a more diverse economy beyond gaming/hospitality.
Will I face California audits if I move to Arizona?
California audits former residents regardless of destination, though they may focus more heavily on moves to zero-tax states. Still, establish genuine Arizona residency: get an AZ driver's license, register to vote, register your car, and spend the majority of your time in Arizona.
Related Comparisons
Sources
- • California Franchise Tax Board - 2025 Tax Rates
- • Arizona Department of Revenue - 2025 Tax Rates
- • IRS Publication 334 - Tax Guide for Small Business
- • US Census Bureau - State-to-State Migration Flows
- • Tax Foundation - State Tax Data 2025