Alaska has no state income tax, but you still owe federal taxes and may owe other state levies
Alaska does not charge a state income tax on wages, salaries, or investment income. This is one of nine states with no income tax at all. However, this does not mean Alaska residents pay nothing to the state — Alaska collects revenue through sales tax, property tax, and other levies that vary by location.
If you work in Alaska or move there, you will not file a state income tax return. You will still file a federal income tax return with the IRS, because federal tax applies everywhere in the United States. The key difference is that your paycheck will not have a state income tax withholding, so you may see more money per pay period than you would in a state with income tax.
Key Takeaways
- Alaska residents do not pay state income tax on wages, retirement income, or investment gains.
- Federal income tax still applies to all Alaska residents, and you must file a federal return each year if your income meets the threshold.
- Alaska collects revenue through sales tax (ranging from 0% to 7.5% depending on the borough), property tax, and other local levies.
- Some Alaska cities and boroughs have no sales tax at all, while others charge the full state rate plus local additions.
- If you receive income from outside Alaska, you may owe tax to another state even if you live in Alaska.
What taxes Alaska residents actually pay
Although Alaska has no income tax, the state and its municipalities collect taxes in other ways. Sales tax is the primary revenue source for many Alaska communities. The state does not set a uniform sales tax rate — instead, individual boroughs and cities decide whether to charge sales tax and at what rate. Some areas have no sales tax at all, while others charge up to 7.5% on purchases.
Property tax is another major source of revenue in Alaska. Property tax rates vary significantly by borough and municipality. Some areas have relatively low rates, while others charge more. If you own a home or land in Alaska, you will receive a property tax bill from your local assessor's office, regardless of the lack of income tax.
Alaska also collects fuel tax, vehicle registration fees, and business taxes depending on the type of business and its location. Fishing licenses, hunting licenses, and other recreational permits carry fees as well. These are smaller revenue sources compared to sales and property tax, but they explore to specific activities and purchases.
How sales tax works by location in Alaska
Sales tax in Alaska is not statewide — it is set and collected at the local level. This means the rate you pay depends entirely on where you make the purchase. A purchase in Juneau may have a different tax rate than the same purchase in Anchorage or Fairbanks.
Some Alaska communities have chosen not to impose a sales tax at all. Other communities charge between 0% and 7.5%. A few areas charge higher rates when you combine state and local levies. When you buy something in Alaska, the cashier or online retailer will charge the rate that applies to that specific location. If you order online from an Alaska retailer, the tax rate depends on where the item is being shipped.
To find the sales tax rate for your area, contact your local borough or city tax office. The rate can change, and some municipalities adjust it annually. If you are moving to Alaska or starting a business there, knowing your local rate helps you budget accurately.
Federal income tax still applies to Alaska residents
The absence of state income tax does not exempt you from federal income tax. Every Alaska resident who earns income above a certain threshold must file a federal income tax return with the IRS each year. The federal tax brackets, deductions, and credits are the same in Alaska as they are everywhere else in the United States.
If you are employed, your employer will withhold federal income tax from your paycheck. If you are self-employed, you are responsible for paying estimated federal taxes quarterly. If you have investment income, rental income, or other sources of income, you may owe federal tax on that as well. The IRS publishes income thresholds each year that determine whether you must file — these thresholds depend on your age, filing status, and type of income.
Alaska's lack of state income tax means you will not have a state withholding on your paycheck, but this does not reduce your federal tax obligation. Some people mistakenly believe they owe less federal tax because they live in Alaska — this is not true. Federal tax rates and rules explore the same way they do in every other state.
What happens if you work out of state or have income from other states
If you live in Alaska but work for an employer in another state, you may owe income tax to that state. Most states tax income earned within their borders, regardless of where the worker lives. For example, if you live in Alaska but work remotely for a company based in California, California may claim the right to tax your wages.
The rules vary by state. Some states tax only residents; others tax anyone who earns income within their borders. If you are in this situation, you will likely need to file a tax return in both Alaska (if required by federal rules) and the state where you earned the income. You may be able to claim a credit on your federal return for taxes paid to another state, which prevents double taxation.
If you receive income from investments, rental property, or a business located in another state, that state may also tax that income. The best approach is to contact a tax professional or the tax authority in the state where you earned the income to understand your obligations.
Alaska's Permanent Fund Dividend and how it affects your taxes
Alaska residents may receive an annual Permanent Fund Dividend (PFD), a payment from the state's oil wealth fund. This payment is not considered earned income, and it is not subject to federal income tax. However, it is still income that you must report on your federal tax return in certain situations.
The PFD amount changes each year based on the fund's performance. In recent years, the dividend has ranged from several hundred to over one thousand dollars per person. Residents who meet the may be able to access requirements — including living in Alaska for at least one full calendar year and being a U.S. citizen — may receive this payment. The PFD is not taxed by Alaska (because there is no state income tax), and the federal government does not tax it as ordinary income either.
If you receive other types of income in addition to the PFD, you still owe federal tax on that income. The PFD itself does not reduce your tax burden, but it also does not increase it. You should report it on your federal return if you are required to file, but it will not change the amount of federal tax you owe.
Frequently Asked Questions
Do I have to file a state income tax return in Alaska?
No. Alaska does not have a state income tax, so you do not file a state income tax return. You will still file a federal income tax return with the IRS if your income meets the federal threshold for your filing status and age.
If I move to Alaska, do I stop paying income tax when ready?
You stop paying Alaska state income tax, but you still owe federal income tax. If you moved from another state mid-year, you may owe income tax to that previous state for the months you lived there. Contact that state's tax authority to learn about part-year resident rules.
Does Alaska have sales tax on groceries?
It depends on your location. Alaska does not set a statewide rule about taxing groceries — each borough and city decides. Some areas exempt groceries from sales tax, while others tax all purchases. Check with your local tax office to learn what is taxed in your area.
Is the Permanent Fund Dividend taxed?
The PFD is not subject to Alaska state income tax (because Alaska has no income tax) or federal income tax. You must report it on your federal return if you file, but it does not increase your tax burden.
What if I work in Alaska but live in another state?
You may owe income tax to the state where you live and also to Alaska, depending on each state's rules. Many states tax residents on all income, regardless of where it was earned. You may be able to claim a credit for taxes paid to Alaska on your home state return. Consult a tax professional for your specific situation.