Overview of Alaska Taxes
The Last Frontier’s residents are pretty lucky when it comes to taxes, as Alaska is the only state in the country without state income taxes or sales taxes. That’s because Alaska mainly funds its operations using money earned from petroleum. However, Alaskans aren’t exempt from federal taxes. These are withheld from each paycheck, based on things such as additional income, marital status and whether or not the taxpayer has any dependents.
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Alaska Paycheck Calculator
Alaska Paycheck Quick Facts
- Alaska income tax rate: 0%
- Median household income: $86,370 (U.S. Census Bureau)
- Number of cities that have local income taxes: 0
How Your Alaska Paycheck Works
As with other states, Alaska residents have federal and FICA taxes withheld from their paychecks. This money goes to the IRS, which puts it toward your annual income taxes and, in the case of FICA taxes, Medicare and Social Security. The Medicare tax is 2.9% of each employee’s gross wages, while the Social Security tax is 12.4%, but employers pay half of that, to ease the burden on workers. The half that you actually have to pay comes out of your paycheck. That’s why, if you add up your paychecks, at the end of the year, it doesn’t add up to the full amount of your annual salary.
Your employer knows how much to withhold from your paychecks based on what you fill out on your Form W-4. That’s why it’s important to fill out a new W-4 whenever you start a new job or you have a major life change, such as a marriage or the birth of a child. The new W-4 no longer asks you to list total allowances. Instead, it requires filers to enter annual dollar amounts for income tax credits, non-wage income, itemized and other deductions and total annual taxable wages. The form also uses a five-step process that allows filers to enter personal information, claim dependents and indicate any additional income.
One thing affecting how much tax comes out of your paycheck is your marital status. The size of your paycheck is also affected if you take advantage of any employer benefits, which can either be pre- or post-tax. For example, you can contribute to your employer’s 401(k) plan or a health savings account (HSA). These contributions are pre-tax, so they come out of your paycheck before any income taxes do. Other types of retirement accounts, like a Roth 401(k), take post-tax contributions. That means your contributions come out of your pay after income taxes have already been removed. The type of account that’s best for you will depend on your situation.
Finally, the frequency of your paychecks affects their size. For example, if you are paid biweekly you will receive smaller paychecks than if you are only paid once a month.
Since there aren’t any state or local income taxes in Alaska, there isn’t much that will affect your paycheck on that front. However, there is one thing to be mindful of. If you’re an Alaska resident, but you didn’t reside in the state for the entire year, you might be subject to the local and state taxes of the state where you worked beforehand.
A financial advisor can help you understand how taxes fit into your overall financial goals. SmartAsset’s free tool you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
How You Can Affect Your Alaska Paycheck
The easiest way to change your take-home pay is to tweak your W-4. One way to adjust your paychecks is by specifying exactly how much you want your employer to withhold. There’s a line on your W-4 that allows you to enter exactly how much you want withheld.
You can also modify your pre-tax contributions. Saving more in a Flexible Spending Account (FSA) or a retirement plan like a 401(k) will lower your taxable income and thus reduce how much you have to pay in taxes.
It’s also worth mentioning the Alaska Permanent Fund. While it doesn’t directly affect your paychecks, it does impact your overall earnings each year. If you’ve lived in Alaska for a whole calendar year and intend to live in the state indefinitely, you can apply for a Permanent Fund Dividend (PFD). This payment comes from a state-owned investment fund that’s created using oil revenues. All permanent Alaska residents are eligible for PFDs, including children.
If this incredibly low tax burden has you dreaming of moving to Alaska, take a look at our mortgage guide, which lays out the important information you’ll want to be familiar with before getting a mortgage in the Last Frontier.
