Does Alaska Tax Military Retirement?

Military retirement pay is a key part of financial planning, and its taxation varies across states. Understanding how states tax this income is a common concern for military personnel. Alaska’s unique tax landscape often raises questions about its approach to taxing military retirement benefits and other income.

Alaska’s General Tax Environment

Alaska operates with a distinct tax structure, setting it apart from many other U.S. states. The state does not impose a statewide individual income tax, which means residents are not subject to state-level taxes on their earnings, including wages, salaries, or investment income. Additionally, there is no statewide sales tax in Alaska.

The state primarily generates its revenue from natural resources, particularly through taxes on the petroleum industry and investment returns from its substantial reserve funds. While there is no statewide sales tax, local governments, such as boroughs and municipalities, have the authority to levy their own sales taxes, which can vary by location. This localized approach to taxation shapes the overall financial environment for residents.

Taxation of Military Retirement Income

Alaska does not tax military retirement pay. As the state does not levy an individual income tax on any personal income, military retirees residing in Alaska do not face state income tax obligations on their retirement benefits.

This makes Alaska one of several states that do not tax military retirement pay. For service members considering where to settle, Alaska’s tax environment offers a notable advantage. Income from other retirement accounts, pensions, or savings also remains untaxed at the state level.

Other Key State Taxes

While Alaska lacks statewide income and sales taxes, residents do encounter other forms of taxation, primarily at the local level. Property taxes are administered by boroughs and municipalities, meaning rates and assessments vary significantly depending on the specific locality. The average effective property tax rate in Alaska is around 1.16%, which is higher than the national average.

However, Alaska offers property tax exemptions for senior citizens and disabled veterans. For instance, the first $150,000 of assessed home value is exempt from property taxes for seniors aged 65 and over, and for disabled veterans with a 50% or more service-connected disability. Another unique financial aspect is the Alaska Permanent Fund Dividend (PFD), an annual payment distributed to eligible residents from the state’s oil wealth. While the PFD is not subject to state income tax, it is considered taxable income for federal purposes and must be reported on federal tax returns.