Overview of Alaska Taxes
The Last Frontier’s residents are pretty lucky when it comes to taxes: 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. Those are withheld from each paycheck, depending on allowances, marital status and whether or not the taxpayer has any dependents.
|FICA and State Insurance Taxes||--%||$--|
|State Disability Insurance Tax||--%||$--|
|State Unemployment Insurance Tax||--%||$--|
|State Family Leave Insurance Tax||--%||$--|
|State Workers Compensation Insurance Tax||--%||$--|
|Take Home Salary||--%||$--|
- Our Tax Expert
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
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. Medicare tax is 2.9% of each employee’s gross wages and 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 marriage or the birth of a child). In December 2017, President Trump signed a new tax plan into law, and you likely noticed a change in your take-home pay starting in early 2018 as a result. While there are no new changes for 2019, it’s a good idea to look over your W-4 at the beginning of the year just to ensure all your information is still correct.
One thing affecting how much tax comes out of your paycheck is your marital status. The number of allowances you can claim will also change your paycheck calculations. Claiming more allowances means that less will come out of your paychecks. Just be careful not to claim too many, or you may owe money come tax season. (You can help yourself claim the right number of allowances with this guide to filling out your W-4.) 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 health savings account (HSA). These contributions are pre-tax, so they come out of your paycheck even before income tax does. 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.
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
The biggest way to change your take-home pay is to tweak your W-4. If you think you’ll receive a big tax refund or owe a lot come April, adjust your allowances. You can further adjust your paychecks 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 or a retirement plan like a 401(k) will lower your taxable income and thus reduce how much you have to pay in taxes.
If the lack of income taxes and the incredibly low tax burden have 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.
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.
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 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics