Alaska has no state income tax. Things like Social Security retirement benefits and pension payments are not taxed at all by the state. Additionally, there is no state sales tax in Alaska and no estate or inheritance tax.
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Alaska Retirement Taxes
Taxes in Alaska are very low, especially if you are a senior. There is no state income tax, which means things like Social Security and pension payments are not taxed at all by the state.
In fact, Alaska pays people just to live in the state permanently. The annual Permanent Fund dividend goes to every Alaska resident and is often more than $1,000. Additionally, there is no state sales tax in Alaska and no estate or inheritance tax.
There are, however, two reasons a senior might think twice before moving to Alaska. The first is the weather: it’s no secret that winters in Alaska are harsh. The second reason? Cost of living. On average, living expenses like housing, utilities and transportation are 37% higher in Alaska than in the rest of the U.S.
Is Alaska tax-friendly for retirees?
Alaska is very tax-friendly for retirees. In fact, it is tax-friendly for everyone, retirees included. There is no state income tax in Alaska. Likewise, there is no statewide sales tax, although local governments can collect their own sales taxes. These are relatively low and average just 1.76%.
Property tax rates are closer to the U.S. average. In some municipalities, however, seniors can exempt most or all of their home value from property taxes, as described in further detail below.
On top of all that, seniors (like all other Alaska residents) benefit from the Permanent Fund dividend. That ranges from $800 to more than $2,000 per year, offsetting many of the other taxes seniors may have to pay in Alaska.
Is Social Security taxable in Alaska?
Nope. Since Alaska has no state or local income taxes, Social Security disbursements do not get taxed. Federal taxes on Social Security may still apply, however.
Are other forms of retirement income taxable in Alaska?
No. Income from savings, retirement accounts, pensions or any other source are not taxed. That can add up to thousands of dollars in tax savings per year as compared with other states that tax some or all of these as regular income.
How high are property taxes in Alaska?
The property tax is really the only significant local tax in Alaska. The average effective rate across the state is 1.23%, slightly higher than the U.S. average. However, seniors in many cities benefit from exemptions, as described below.
What is the Alaska homestead exemption?
There is no statewide homestead exemption in Alaska, but many cities exempt seniors from paying property taxes on some or most of their home’s value. In Anchorage, for example, persons age 65 or older can exempt up to $150,000 of their principal residence from property taxes. So seniors who own and live in a home worth less than $150,000 could pay no property taxes at all!
How high are sales taxes in Alaska?
Sales taxes are fairly low in the Last Frontier. There is no statewide sales tax, but cities and boroughs (which are like counties) can collect their own local rates. These range from 0% to 7%, but average just 1.76%. In Anchorage, there are no sales taxes.
What other Alaska taxes should I be concerned about?
This isn’t a tax, but seniors should be aware of Alaska’s high cost of living. Housing in Alaska is almost 50% more expensive than the national average. Utilities are a whopping 60% more expensive than the national average (largely thanks to the long, dark winters). Healthcare costs are 43% above average. These high living expenses may be offset by Alaska’s low taxes but they are important to keep in mind.
Calculate Your Retirement Taxes in These Other States
Most Tax Friendly Places for Retirees
SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.
Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.
To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.
We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.
In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.
For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.
For each city we determined whether or not Social Security income was taxable.
Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.
Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2015 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration