Tax Year 2026Updated July 13, 2026

Does Alaska Tax Overtime in 2026?

No - Alaska does not tax overtime because it has no state income tax. Alaska repealed its personal income tax in 1980 and has not reimposed one. Overtime pay – like all wages – owes $0 in Alaska state tax. Alaska workers still benefit from the federal OBBBA overtime deduction (IRC §225), which allows deducting up to $12,500 ($25,000 MFJ) in overtime premium pay from federal adjusted gross income.

How Alaska's Overtime Tax Treatment Works

Alaska is one of nine states with no state income tax. The state had an income tax from 1949 to 1980, but repealed it after oil revenues from the Trans-Alaska Pipeline System eliminated the need for personal income tax revenue. Because there is no state income tax, overtime pay faces no state-level taxation.

Federal benefit still applies: Alaska workers can claim the federal OBBBA overtime deduction (IRC §225) on their federal return, deducting up to $12,500 ($25,000 MFJ) in qualifying overtime premium pay from federal AGI.

No employee-side state taxes: Alaska imposes no employee-side income or payroll taxes. Employers pay State Unemployment Insurance (SUI) tax, but employees see no state deductions from their paychecks. Federal FICA taxes (6.2% Social Security + 1.45% Medicare) still apply to all overtime wages.

Federal Overtime Deduction Quick Reference

Detail	Value
IRC Section	§225 (OBBBA)
Maximum deduction	$12,500 overtime ($25,000 MFJ)
Deduction type	Above-the-line (Schedule 1-A)
FICA still applies?	Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?	No (MFJ or Single/HoH only)
Effective dates	Jan 1, 2025 – Dec 31, 2028
Alaska treatment	Does not conform
What qualifies?	Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees

Worked Examples Comparing Federal and Alaska Treatment

Example 1: Oil field worker (single filer, $50,000 income, $8,000 overtime premium)

Federal return:
Qualifying overtime premium: $8,000
Overtime deduction claimed: $8,000 (capped at $12,500)
Estimated federal tax savings: $960.00

Alaska return:
Alaska has no state income tax. This oil field worker's $8,000 in overtime premium pay owes $0 in Alaska state tax. The federal OBBBA overtime deduction (IRC §225) provides the only tax relief, reducing federal income tax by an estimated $960 at the 12% bracket.

Example 2: Fishery worker (single filer, $80,000 income, $12,500 overtime premium - federal cap reached)

Federal return:
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00

Alaska return:
Alaska has no state income tax, so no state tax applies to overtime or any other wages. The federal OBBBA deduction caps at $12,500 for single filers, saving an estimated $2,750 in federal taxes at the 22% bracket. Alaska workers benefit from having no state income tax layer on their overtime earnings.

Alaska – No Income Tax Since 1980

Alaska repealed its state income tax in 1980, funded by the massive oil revenue boom that followed the opening of the Trans-Alaska Pipeline System in 1977. The state has relied on oil revenue, investment income from the Alaska Permanent Fund, and other non-income-tax sources ever since. There has been periodic debate about reimposing an income tax during oil price downturns, but no legislation has advanced.

Overtime in Alaska's Oil and Seasonal Industries

Alaska's economy features some of the heaviest overtime work patterns in the nation:

North Slope oil operations: Workers on the North Slope typically work rotational schedules (e.g., 2 weeks on/2 weeks off) with 12-hour days, generating substantial overtime. Non-exempt workers earn 1.5x for hours over 40/week and can claim the OBBBA deduction on the premium portion.
Commercial fishing: Alaska's fishing industry is critical to the state economy. However, certain fishing employees are exempt from FLSA overtime under §13(a)(5), meaning they may not earn qualifying overtime for the OBBBA deduction.
Summer tourism: Seasonal tourism workers in Denali, the Kenai Peninsula, and cruise port towns often earn significant overtime during the short summer season (May–September).

Permanent Fund Dividend (PFD) and Overtime

The Alaska Permanent Fund Dividend (PFD) is a unique annual payment to Alaska residents funded by the state's oil wealth. PFD eligibility depends on residency requirements – not income. Earning overtime does not affect PFD eligibility or the amount received. The PFD itself is taxable on your federal return but not at the state level (since Alaska has no income tax).

Related Tools

No Tax on Overtime Calculator - calculate your federal overtime deduction
Alaska Tax Guide - full state tax overview
Alaska Paycheck Calculator
Does Alaska Tax Tips?
W-2 Code TP: Tips Reporting Guide
W-2 Code TT: Overtime Reporting Guide
All 51 States: Tips & Overtime Tax Map

Frequently Asked Questions

Does Alaska tax overtime pay in 2026?

No. Alaska has no state income tax at all. The state repealed its personal income tax in 1980 and has not reimposed one since. Overtime pay – like all wage income – is not taxed at the state level. Alaska workers only owe federal income tax and FICA on their overtime earnings.

Do Alaska workers benefit from the federal overtime deduction?

Yes. The federal OBBBA overtime deduction (IRC §225) allows qualifying workers to deduct up to $12,500 ($25,000 for married filing jointly) in overtime premium pay from federal adjusted gross income. Alaska workers benefit from this deduction on their federal return, which is their only income tax obligation.

Does overtime affect my Alaska Permanent Fund Dividend (PFD)?

No. The Alaska Permanent Fund Dividend (PFD) eligibility is based on residency requirements, not income level or wages. The amount of overtime you earn does not affect your PFD eligibility or amount. The PFD is funded by investment earnings of the Alaska Permanent Fund and is distributed equally to all qualifying residents regardless of their income.

How does overtime work for Alaska's oil and gas industry workers?

Alaska's oil and gas industry – centered on the North Slope – is one of the state's largest employers and involves heavy overtime, especially during project ramp-ups and seasonal operations. Under the federal FLSA, non-exempt oil field workers earn 1.5x their regular rate for hours over 40 in a workweek. The overtime premium (the extra 0.5x above straight time) qualifies for the federal OBBBA deduction. Some highly compensated employees ($107,432+ annually) may be FLSA-exempt and not eligible for the deduction.

Do Alaska seasonal workers (fishing, tourism) qualify for the federal overtime deduction?

FLSA status is the key factor. Some seasonal fishing and seafood processing workers may be exempt from FLSA overtime requirements under specific exemptions (e.g., FLSA §13(a)(5) for certain fishing employees). Workers who are exempt from FLSA overtime do not earn qualifying overtime premium pay and cannot claim the OBBBA deduction. Non-exempt seasonal workers who receive overtime at 1.5x can claim the deduction on the premium portion, up to the annual cap.

Are there any Alaska payroll taxes on overtime earnings?

Alaska does not impose any employee-side state payroll or income taxes. Alaska employers pay State Unemployment Insurance (SUI) tax on wages up to the taxable wage base, but this is an employer-only obligation. Employees see no Alaska state deductions from their paychecks. Federal FICA taxes (Social Security and Medicare) still apply to all overtime wages.