Alaska does not have a state income tax on wages, salaries, or investment income
Alaska is one of nine states with no state income tax. You will not owe Alaska state income tax on money you earn from a job, self-employment, interest, dividends, or capital gains. If you work in Alaska or live there, you do not file a state income tax return to the state of Alaska.
This does not mean Alaska has no taxes at all. The state funds itself through oil revenue, sales tax, property tax, and other sources. But the absence of state income tax is a real difference in your take-home pay compared to living in states like California, New York, or Colorado.
You still owe federal income tax to the IRS, no matter where you live. Alaska's lack of state income tax does not change your federal filing or your federal tax bill.
Key Takeaways
- Alaska has no state income tax on wages, self-employment income, investment income, or retirement distributions.
- You do not file a state income tax return to Alaska, though you still file a federal return to the IRS.
- Alaska funds state government through oil revenue, sales tax, and property tax instead of income tax.
- If you move to Alaska from a state with income tax, you may see a real increase in take-home pay, but your federal tax obligation stays the same.
- Some Alaska cities and boroughs charge local property tax or sales tax, so your total tax burden depends on where in the state you live.
How Alaska funds state government without income tax
Alaska's primary source of state revenue is oil. The state owns mineral rights to vast oil reserves and collects royalties and taxes from oil companies that extract and sell that oil. This revenue has historically been large enough to fund state services without needing an income tax.
The state also collects sales tax. Alaska's statewide sales tax rate is 0 percent, but individual cities and boroughs can and do impose local sales taxes. Juneau, Anchorage, Fairbanks, and other municipalities set their own rates, which range from about 1 percent to 7.5 percent depending on location. If you buy something in Anchorage, you pay Anchorage's local sales tax; if you buy it in Juneau, you pay Juneau's rate.
Property tax is another major source. Alaska has no statewide property tax, but cities and boroughs assess property tax on real estate within their boundaries. The rate and assessment method vary widely by location. Some areas have high property taxes; others have none.
What taxes you do pay if you live or work in Alaska
Federal income tax is mandatory. Your employer withholds federal tax from your paycheck based on your W-4 form, and you file a federal return with the IRS each year. Alaska's lack of state income tax does not reduce this obligation.
Self-employment tax applies if you are self-employed. You pay Social Security and Medicare tax (15.3 percent of net self-employment income) regardless of which state you live in. This is a federal obligation, not an Alaska one.
Local sales tax depends on where you live. If your city or borough imposes sales tax, you pay it on most purchases. Some areas have no local sales tax at all. Check your city or borough's website or ask a local business to find out your rate.
Property tax applies if you own real estate in Alaska. The amount depends entirely on your location. Some boroughs have no property tax; others assess it at rates comparable to other states. If you rent, you do not pay property tax directly, though your landlord's property tax may be reflected in your rent.
Moving to Alaska and your tax situation
If you move to Alaska from a state with income tax, you will not owe that state's income tax on income earned after you leave. You may owe income tax to your former state on income earned while you lived there, depending on when you moved and how that state's tax year works.
The IRS considers you an Alaska resident for federal tax purposes once you establish residency there. You file your federal return as an Alaska resident, but this does not change your federal tax rate or your federal obligation — it only changes which state address appears on your return.
Your take-home pay may increase when you move to Alaska because you are no longer paying state income tax. However, this gain can be offset by higher local sales tax or property tax in your specific city or borough. Calculate your total tax burden in your new location before assuming you will pay less overall.
Self-employed workers and business owners in Alaska
If you are self-employed or own a business in Alaska, you do not pay Alaska state income tax on your business income. You do pay federal self-employment tax and federal income tax on your net profit.
Alaska has no state sales tax, but you must collect and remit local sales tax if your business operates in a city or borough that imposes it. Anchorage, Juneau, Fairbanks, and most other populated areas have local sales tax. You register with the local tax authority, collect tax from customers, and send it in monthly or quarterly depending on your location's rules.
If you have employees, you withhold federal income tax and Social Security and Medicare tax from their paychecks. You do not withhold Alaska state income tax because it does not exist. You may need to register with your local borough or city for payroll purposes depending on local rules.
Retirement income and investment income in Alaska
Alaska does not tax retirement distributions, pension income, Social Security, or investment income. If you receive a distribution from an IRA, 401(k), or pension, you do not owe Alaska state tax on it. Social Security benefits are not taxed by Alaska. Interest and dividends are not taxed by Alaska.
You still owe federal tax on these income sources. The IRS taxes retirement distributions, pension income, and investment income at federal rates. Alaska's exemption applies only to state tax.
This makes Alaska attractive to retirees, particularly those with substantial retirement savings or pension income. However, check your specific city or borough's property tax and sales tax rates, as these can be significant in some areas.
Other Alaska taxes and fees
Alaska collects excise tax on certain goods, including fuel, alcohol, and tobacco. These are embedded in the price you pay at the pump or store and are not listed separately on your receipt. Excise taxes are a form of consumption tax, not income tax.
Vehicle registration and licensing fees explore to car owners. These are not income tax but are a regular expense for vehicle owners in any state.
Some professions require licensing fees or occupational taxes. These vary by profession and locality and are typically small annual fees.
Frequently Asked Questions
Do I have to file a state income tax return if I live in Alaska?
No. Alaska has no state income tax, so you do not file a state income tax return to Alaska. You still file a federal return with the IRS if your income exceeds the federal filing threshold for your age and filing status.
If I work in Alaska but live in another state, do I owe Alaska income tax?
No. Alaska has no state income tax, so you do not owe it regardless of where you live. You may owe income tax to the state where you live, depending on that state's rules. Some states tax residents on all income, including income earned out of state.
Are Social Security and pension income taxed in Alaska?
Alaska does not tax Social Security, pension income, or retirement distributions. You do not owe Alaska state tax on these sources. The IRS may tax them at the federal level depending on your total income and filing status.
What is the sales tax rate in Alaska?
Alaska has no statewide sales tax. Individual cities and boroughs set their own local sales tax rates, which range from 0 to 7.5 percent. Your rate depends on where you live and shop. Contact your city or borough to find your specific rate.
Does Alaska have property tax?
Alaska has no statewide property tax, but cities and boroughs can assess property tax on real estate within their boundaries. Some areas have high property taxes; others have none. Check your specific city or borough's assessor's office to learn your rate.