No income tax in Alaska: the dividend the IRS taxes, and the local taxes that take its place

An Alaskan files one return, Form 1040, and nothing with the state. There is no state income tax, no city or borough income tax, no state sales tax, and no estate or inheritance tax. The state instead pays its residents: the 2026 Permanent Fund Dividend is $1,200 per eligible person, a $1,000 dividend plus a $200 energy relief payment, paid as one amount beginning October 1, 2026. The dividend is federal income. It is reported to the IRS on a Form 1099-MISC, it goes on Schedule 1 (Form 1040), line 8g, and it is taxed at the household’s ordinary rate. A family of four received $4,800 in October and will owe federal tax on it in April.

That is the whole state picture for most households. The taxes Alaskans do pay are local and uneven: 107 municipalities levy a sales tax of 1% to 7%, and 24 or so levy a property tax (verify), while much of rural Alaska levies neither. Anchorage, Fairbanks and the Mat-Su Borough have no sales tax; Juneau charges 5%. Which taxes a household pays depends almost entirely on where in Alaska it lives.

The dividend on the federal return

The Permanent Fund Dividend Division sends every recipient’s dividend to the IRS and makes the 1099-MISC available in the recipient’s myPFD account each winter (verify the month). The IRS is specific about where the income goes: Schedule 1, line 8g, “Alaska Permanent Fund dividends.” It is not a stock dividend and does not belong on Schedule B or at the qualified-dividend rate. It is ordinary income, like wages, and a household in the 12% bracket owes $144 on each $1,200 dividend; a household in the 22% bracket owes $264.

Two things about the amount. First, the full dividend is income even if part of it never arrived. A dividend garnished for child support, a court judgment or a state agency debt is still $1,200 of income to the person it was paid for. Second, a donation to an Alaska nonprofit through Pick.Click.Give. at application time, or a contribution to an Alaska 529 account from the dividend, does not reduce the taxable amount. The whole dividend is income; the gift is a separate charitable contribution, deductible on Schedule A if the household itemizes, and the 529 contribution is simply savings.

The energy relief portion deserves a sentence of its own, because its federal treatment has changed before. In 2022 the dividend was $3,284 and the IRS said it would not challenge excluding the $662.19 energy relief payment from income. In 2024 the dividend was $1,702, also with an energy relief portion, and the IRS revised Publication 525 to say the entire $1,702 was taxable and belongs on line 8g. The 2026 dividend again includes $200 of energy relief. The PFD Division’s page says only that the $1,200 includes it and that the two are paid as one payment under House Bill 263. The IRS has not published anything about 2026 as of this writing. The most recent precedent is that the whole payment is taxable; plan on reporting what the 1099-MISC shows, and expect that to be $1,200 (verify when the 1099-MISC is issued).

Children’s dividends: Form 8814 or a return for the child

Every eligible child receives the same $1,200, and a child’s dividend is the child’s income, not the parents’. What happens next depends on whether the child has other unearned income. The filing threshold for a dependent’s unearned income on the 2025 return was $1,350 (2026 figure to come). A child whose only income is the $1,200 dividend is under the line: no return, no form, nothing to do. A child with a savings account, a UTMA brokerage account or a second source of unearned income crosses it quickly, and then the parents have a choice.

The first choice is Form 8814, Parents’ Election To Report Child’s Interest and Dividends. Line 2a of the form names Alaska Permanent Fund dividends specifically. The 2025 form works like this: the first $1,350 of the child’s interest and dividends is not taxed; the next $1,350 is taxed at 10%, so at most $135; anything above $2,700 is added to the parents’ income and taxed at their rate. The election is available for a child under 19, or a full-time student under 24, whose income was only interest and dividends and totaled less than $13,500. One Form 8814 per child, attached to the parents’ return. The 2026 figures are indexed and had not been published when this was written.

The second choice is a return for the child. It is required when the child has earned income as well, or when the unearned income reaches the Form 8814 ceiling, and it is sometimes better even when it is not required, because income reported on the parents’ return through Form 8814 raises the parents’ adjusted gross income and can shave credits and deductions that phase out with income. A child’s own return with more than $2,700 of unearned income brings in Form 8615, the kiddie tax, which taxes the excess at the parents’ rate. For a child whose only unearned income is the dividend and a little bank interest, Form 8814 is nearly always the simpler path.

The dividend reaches other federal lines

Because the dividend is ordinary income, it counts wherever adjusted gross income counts. It is in the provisional-income formula that decides how much Social Security is taxable. It is in the modified adjusted gross income that sets Medicare premiums two years later. It counts toward the Marketplace insurance subsidy and against the income limit for the earned income credit, and a child’s dividend reported on Form 8814 is added to the parents’ figure for the Marketplace calculation. For a retired couple, $2,400 of dividends can pull another $2,040 of Social Security into taxable income; the arithmetic is in Alaska for retirees.

Backup withholding is the trap that produces the most calls. Each May the PFD Division sends every applicant’s name and Social Security number to the IRS for matching. An applicant whose name or number does not match IRS records is flagged and can correct it over the summer; one who does not has 24% withheld from the dividend, $288 of a $1,200 payment, and the Division cannot return it. The money is not lost: the 1099-MISC shows it as federal tax withheld, and the recipient claims it on Form 1040 like any other withholding. A new spouse who has not updated the name with the Social Security Administration, and a child whose number was entered with a transposed digit, are the usual cases.

What Alaskans pay instead: local sales tax

The state levies no sales tax. Local governments do, and the Office of the State Assessor counts 107 municipalities with a general sales tax, at rates from 1% to 7%, most of them between 2% and 5%. The three largest population centers, Anchorage, Fairbanks and the Mat-Su Borough, have no general sales tax (verify Fairbanks city). Juneau charges 5%, and since November 20, 2025 exempts essential food and residential utilities, after voters approved a citizen initiative in October 2025. Palmer went from 3% to 4% on April 1, 2026. Nome is at 6% (verify). Several Southeast and Kenai Peninsula towns, Craig, Haines, Ketchikan, Seldovia, Sitka and Skagway among them, charge a higher rate in the summer tourist season than in winter (verify current rates).

On the federal return, local sales tax is what an Alaskan who itemizes deducts in place of a state income tax. Schedule A allows either state and local income tax or state and local general sales tax, and with no income tax the sales tax election is the only one with a value. The IRS Sales Tax Deduction Calculator figures a table amount from income, household size and the local rate, and adds the actual tax paid on a vehicle, boat or other large purchase. For a Juneau household the table amount plus the tax on a car can be several thousand dollars; for an Anchorage household it is zero. Either way the deduction goes on Schedule A together with property tax, and the combined SALT line is capped at $40,400 for 2026, a limit few Alaskans approach.

Property tax, where there is one

Property tax is also local. Of Alaska’s 165 municipalities, 24 levy a property tax: 15 of the 19 boroughs and 9 cities outside any borough (verify the current count). Everywhere else, including most of the unorganized borough, there is no property tax at all. Where it exists, the municipal assessor values the property each January 1, the assembly or council sets a mill rate, and the bill follows; Anchorage’s own example uses 16.145 mills, which is $7,063 on a $437,500 taxable value. Property tax paid in the calendar year is deductible on Schedule A within the SALT cap.

The state’s one mandatory break is for seniors and disabled veterans: the first $150,000 of assessed value of the primary residence is exempt from municipal property tax for owners 65 and older, veterans with a service-connected disability of 50% or more, and surviving spouses 60 and older of someone who qualified. Every municipality with a property tax must grant it, on application to the local assessor by a local deadline. Municipalities may add more, and Anchorage and Mat-Su do. The whole subject is in Property tax relief in Alaska.

The statewide sales tax that did not happen

On January 26, 2026 Governor Dunleavy introduced Senate Bill 227 and House Bill 284, Alaska’s first statewide sales tax: 2% from October 1 through March 31 and 4% from April 1 through September 30, on most retail purchases including groceries, gasoline and electricity, with exemptions for health care, prescribed medical items, insurance premiums, internet access and food bought with SNAP or WIC benefits. It would have started January 1, 2027 and dropped to zero on January 1, 2034, and it could not take effect unless three companion bills also passed, one of them a change to how the dividend is calculated. The plan also proposed ending the corporate income tax on January 1, 2031 and raising the minimum oil production tax.

Public testimony ran heavily against it. After a week of hearings the governor said on February 6 that lawmakers should set the tax aside and take more time; House leadership said Alaskans were not ready for a broad-based tax. The regular session ended May 20, 2026 without the bill. A separate Senate provision applying the corporate income tax to privately held oil and gas companies died in the House. Nothing in the 2026 session touched an individual’s return, and no statewide sales tax begins in 2027.