Overview of Alaska Taxes
The Last Frontier residents are pretty lucky folks, since they’re the only state that doesn’t have to pay any state income or sales taxes. That’s because Alaska mainly funds their operations using money earned from petroleum. As if being able to see the Northern Lights every year isn’t already a cause for celebration.
It doesn’t mean, however, that they’re exempt from federal taxes. Those will be withheld from each paycheck, depending on allowances, marital status and whether or not the taxpayer has any dependents.
This calculator reflects the 2018 federal withholding tax changes.
Click here to learn more about how the Trump Tax Plan will affect you.
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Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Alaska Paycheck Quick Facts
How Your Alaska Paycheck Works
Like they say, the only certainty in life are death and taxes, which means that Alaskans will still get federal and FICA taxes withheld from their paycheck.
Where does this money go? Well, the IRS puts it to good use for things like your annual income taxes, Medicare and Social Security. Medicare tax is 2.9% and Social Security tax is 12.4%, but your employer pays for half of it, so only the other half comes from your paycheck. Your employer also withholds federal taxes based on what you fill out on your W-4 form. Make sure you fill out a new W-4 whenever you start a new job or you have a major life change (such as marriage or the birth of a child).
In December 2017, President Trump signed a new tax plan into law. The IRS has since released updated tax withholding guidelines and taxpayers should have seen changes to their paychecks, to reflect the new tax plan, starting in February 2018. When exactly you see changes will depend on when your employer makes the change and how often you receive paychecks. For the time being, taxpayers do not need to fill out a new W-4. Employers will use the withholdings on your current form.
Single? Your marital status will affect how much tax will be taken out of your paycheck. If you’re married but decide to file separately, that will also affect the amount of taxes withheld.
If you’re eligible for certain withholding allowances (like dependents) then you might get less taxes taken out. If you do end up getting a bigger paycheck because of these allowances, then you need to prepare for the fact that you might have a bigger tax bill when it comes time to file your taxes in April.
Your paycheck will also be affected if you decide to 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 (it’s deducted pre-tax) or other types of retirement contributions like a Roth IRA (it’s deducted post-tax). Either way, the money you contribute will come out of your paycheck.
Finally, the frequency of your paychecks affects their size, as if you are paid biweekly you will receive smaller paychecks than if you are only paid once a month. If you get paid once a month, it might also be harder to budget for the entire month without running out of money between paychecks.
Alaska Median Household Income
|Year||Median Household Income|
Since there aren’t any state or local income taxes in Alaska, there isn’t much that will affect your paycheck on that front. The only thing to keep in mind is if you’re an Alaskan resident but you didn’t reside in the state for the entire year. In that case you might be subjected to local and state taxes where you worked.
How You Can Affect Your Alaska Paycheck
A major way you can affect your bank account is seeing whether or not you can take advantage of the Alaska Permanent Fund Corporation. This fund, also known as the Permanent Fund Dividend (PFD) gives out money every year to qualifying residents of Alaska.
Residents from Fairbanks and beyond (including children) are eligible if they’ve lived in Alaska for a whole calendar year before applying for the fund and have intentions to stay in the Land of the Midnight Sun indefinitely. Check to see if there are other criteria for eligibility before applying.
You might want to tweak your W-4 if you think you’ll pay a lot of taxes come April. Instead of paying a bigger amount of taxes during tax season, you can get more taken out of your paycheck over time. One easy way to do this is to ask your employer to withhold a dollar amount from each of your paychecks. All you have to do is write down how much you want taken out on the correct line of a new W-4 form.
Since there aren’t state in Alaska taxes you might think that working more (like two jobs or working overtime) will not change the amount of taxes taken out, but you’d be wrong. Your income is still subject to federal taxes, so think carefully before deciding whether or not the extra money you make working another job or overtime is truly worth it. Once you’ve factored in taxes, you may be taking home less than you expect.
You might also want to think about modifying your pre-tax contributions. Depending on your financial situation, saving more in a Flexible Spending Account or a retirement plan like a 401(k) can actually lower your taxable income which can reduce how much you have to pay in taxes.
If the lack of income taxes and 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 mortgage in the Last Frontier.
Alaska Top Income Tax Rate
|Year||Top Income Tax Rate|
|1949||10.00% (of federal income tax liability)|
|1961||16.00% (of federal income tax liability)|
|1975||3.00% - 14.50%|
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2016 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics