Senate committee narrows bill to waive $25 late-filing fee for zero-liability income tax filers

The Arizona Senate Finance Committee on March 13 advanced an amended version of House Bill 2016 that would eliminate the $25 late-filing penalty for individual income tax returns that show no tax liability, retroactive to Jan. 1, 2026.

Sponsor and proponents said the change is a narrow fairness measure aimed at taxpayers — including minors and part-time workers — who ultimately owe nothing but can still be assessed the statutory $25 late-filing fee. "If the return shows no tax liability, the taxpayer would not be penalized solely for filing late," the sponsor said during opening remarks.

Molly Murphy of the Arizona Department of Revenue told the committee the department is neutral on the bill and supports the committee amendment that removes transaction-privilege-tax (TPT) filers from the waiver, explaining the department needs TPT returns to confirm a $0 liability. "We're neutral on the bill. We're in support of the amendment, for a variety of reasons, but mostly because we need people to file their TPT returns to prove that they have a $0 liability," Murphy said.

Senators pressed the sponsor and DiReps on practical mechanics and potential unintended consequences. Senator Epstein asked about how often the $25 penalty is applied and whether interest could accrue on the $25 if a filer waits many years before filing; Murphy said she could provide numbers and follow up. The chair noted that the filing requirement would still remain, and the penalty's removal raises the question of what would compel late filers to submit returns on time.

The committee adopted a sponsor amendment limiting the waiver to income tax filers and then voted to forward the bill with a due-pass recommendation. The roll call shown in the hearing transcript recorded the committee's approval of HB 2016 as amended.

Next steps: the bill will move from the Finance Committee as amended; staff said the sponsor and department will follow up with additional information about frequency and interest treatment on late $25 penalties.