Alaska may seem far-flung from the rest of the country, but as you probably know, Alaska employers have to pay payroll taxes just like in other states. If you're running a business in Alaska, you need to be clear about payroll taxes in Alaska. What are payroll taxes? In simple terms, payroll taxes are taxes you have to pay to the government on behalf of your employees. These taxes contribute to things like social security, medical insurance, and unemployment insurance.
When you're putting so much effort into keeping your business profitable, you don't want to end up paying penalties or interest because of glitches in payroll taxes. Managing state payroll taxes along with federal payroll taxes isn't as daunting once you're clear about the basics. That's why it's so important to stay up-to-date with your state payroll tax regulations.
This article will help you understand Alaska payroll tax requirements. It covers the following topics:
- What Payroll Taxes Do You Have to Pay in Alaska?
- 1. Alaska Unemployment Insurance Tax
- 2. Applicable Federal Payroll Taxes
- Alaska Payroll Taxes: Unemployment Insurance Tax
- What exactly is it?
- Do you have to pay Alaska Unemployment Insurance Tax?
- Alaska Payroll Taxes: Getting Started
- Register to get your Employer Account Number
- Notice to employees
- Alaska Payroll Taxes: Filing and Paying Unemployment Insurance Tax
- Taxable wage base
- Payments you have to report as wages
- Employee contributions to tax
- Filling up the Quarterly Report Form
- Persons you don't have to report
- Alaska Payroll Taxes: Applicable Federal Taxes
- Federal payroll taxes: FICA
- Federal payroll taxes: FUTA
- Federal payroll taxes: FIT
- Alaska Payroll Taxes: Best Practices
- Alaska Payroll Taxes: Summing Up
- How Deskera Can Assist You?
- Key Takeaways
- Related Articles
What Payroll Taxes Do You Have to Pay in Alaska?
Alaska has one state payroll tax, which is a state unemployment insurance tax. Apart from this, the only payroll taxes you have to pay are federal payroll taxes. Luckily, as an Alaska employer, you don't have to worry about Alaska income tax in your payroll taxes. This is because, unlike most other states, Alaska doesn't require individuals to pay income tax. So you don't need to withhold any amounts from employees’ wages to pay as state withholding tax because there is no state income tax due from your employees.
There are basically two kinds of payroll taxes you have to pay as an Alaska employer.
1. Alaska Unemployment Insurance Tax
Unemployment insurance tax is one of the payroll taxes you pay to the government as a contribution towards unemployment benefits for employees. States usually have their own state unemployment insurance taxes, which you have to pay as an employer.
As a part of payroll taxes, Alaska employers have to pay the Alaska unemployment insurance tax. In Alaska, this tax is specifically called the Employment Security Tax. Employment Security Tax is the only state payroll tax you have to pay in Alaska.
This is in addition to the federal unemployment tax (FUTA), which is given below under federal payroll taxes.
2. Applicable Federal Payroll Taxes
As an Alaska employer, you have to think about not just the Alaska payroll taxes but also the applicable federal payroll taxes. This includes the Federal unemployment insurance tax (FUTA), as well as payroll taxes mandated by FICA (Federal Insurance Contributions Act), which go towards Social Security and Medicare. You also have to pay Federal Income tax.
Alaska Payroll Taxes: Unemployment Insurance Tax
What exactly is it?
Alaska unemployment insurance tax is basically a percentage of the wages you pay your employees that you need to pay the state. You will have to first find out your tax rate. For 2022, the range is 1% to 5.4% on the first $45,200 in wages. You will also have to withhold 0.56% on the first $45,200 wages from every employee and pay it to the state as part of your payroll taxes. This will be the employee's contribution toward Alaska's unemployment insurance tax.
Note that if you're a new employer, your rate will range from 1.99% to 2.44%, depending on which industry sector your business is in.
Do you have to pay Alaska Unemployment Insurance Tax?
You have to pay Alaska Unemployment Insurance Tax if you hire one or more persons to perform services for your business. The services should directly benefit your business. Even if you hire the employees for a portion of the day, it would still apply.
It doesn't matter if you are employing them as an individual person, a firm, a corporation, a Limited Liability Company (LLC), a non-profit, or any other kind of organization - you still have to pay the tax.
However, what is worth looking into is whether any of the people you hire could be categorized as independent contractors and not employees. The conditions for a person to be considered an independent contractor are explained later in this article. If they are independent contractors, you don't have to pay unemployment insurance tax for them.
Alaska Payroll Taxes: Getting Started
If you're just getting started with your Alaska business, you will have to register the new business and get a tax account and an account number.
Register to get your Employer Account Number
The first step is to establish a tax account by registering with the Alaska Unemployment Insurance (UI) tax section, which is a section of the Alaska Department of Labor and Workforce Development (AKDOL).
You can register a new business online by creating a myAlaska account and applying for an Alaska employer account number. You will be assigned an account number and a tax rate, based on the information you provide about your business.
Notice to employees
You will then have to put up a Notice to Employees as this is required under Alaska law. This is a notice that informs the employees that they are covered under Employment Security. You should put it up in a place where it is easily accessible and clearly visible to them.
Alaska Payroll Taxes: Filing and Paying Unemployment Insurance Tax
Now you have to start filing quarterly wage reports, which are called contribution reports. These reports are filed through Form TQ01. You can file your quarterly report online and make your tax payment along with it. Do note that you have to file reports even for the quarters where no wages were paid.
Taxable wage base
You have to pay unemployment insurance tax for each employee up to the amount of the taxable wage base. Anything above that is not taxable. What is the taxable wage base? For payroll taxes in Alaska, the taxable wage base is 75% of the average annual wage. Any wages you pay to an employee above that amount are not taxable but you will still have to report the wages.
Payments you have to report as wages
The wages that are reportable for payroll taxes in Alaska are the total wages paid to an employee before any deductions, such as taxes, are made. Wages would include any compensation you pay your employees for their services.
- Hourly pay
- Payment of bonuses and lump-sum payments
- Cash payments made instead of fringe benefits
- The cash value of any non-cash benefit
- Employee commissions
- Fringe benefits such as daycare
- Sick leave pay
- Any tips that employees report to you
- Vacation pay
Employee contributions to tax
Your employees also have to contribute to the unemployment insurance tax. Their tax rate is 0.56%. You have to deduct this tax from their wages and pay it as a part of your Alaska payroll taxes. You have to report this tax along with your quarterly report and pay it along with your tax payment.
Filling up the Quarterly Report Form
When filling up the quarterly report form, you will need to have the following details:
- Names of employees
- Social security numbers of employees
- Amount of wages paid in the quarter
- Total reportable wages paid in the quarter
- Excess wages paid over the taxable base
- Taxable wages paid in the quarter (this will be calculated by subtracting excess wages from total reportable wages)
- The number of workers who worked and received pay during the payroll period
- Amount and percentage that is the employees' tax contribution
- Amount and percentage that is your tax contribution
Keeping regular records of these details will simplify the filing process for you.
Persons you don't have to report
Note that you will not have to report Sole Proprietors, Partners, or members of a Limited Liability Company, as people performing these roles are not covered under unemployment insurance.
You also don't have to report independent contractors, as they are not covered by unemployment insurance. But make sure that they are categorized as an independent contractor and not an employee. To qualify as an independent contractor, a contract worker must meet all of these three conditions:
- They must be free from your direction and control
- Their service must not form a part of your usual course of business and must not be performed in your place of business
- They must be working in an independent trade or business of the same nature
Alaska Payroll Taxes: Applicable Federal Taxes
Just because you're paying state payroll taxes doesn't mean that you are exempt from paying federal payroll taxes. The IRS is still going to be waiting for your FICA, FUTA, and FIT taxes. These are given below.
Federal payroll taxes: FICA
As an employer, you have to pay withholding tax towards Social Security and Medicare under the Federal Insurance Contributions Act (FICA).
What this means is that you have to withhold a certain percentage of your employees' gross taxable wages for Social Security and a certain percentage for Medicare and pay these amounts as Federal payroll taxes under FICA.
However, keep in mind that in both cases (Social Security and Medicare), you have to match the amount you withheld by paying that same amount yourself along with the withheld amount to the IRS. For additional Medicare (an additional withholding tax you may have to pay for Medicare), you don't have to match the amount yourself.
You can usually record the amounts you paid for FICA matching as a payroll expense, being part of an employees' compensation. However, check the IRS rules to be sure because in a few cases, like in the case of a manufacturing business, it will not be considered a payroll expense.
Federal payroll taxes: FUTA
As an employer, you alone pay the Federal Unemployment Insurance Tax (FUTA). Your employees don't.
But if you pay your Alaska state unemployment tax in full and on time each quarter, you can claim a big tax credit on FUTA, which reduces your FUTA tax substantially. Another reason to stay on top of your Alaska payroll taxes!
Federal payroll taxes: FIT
When your employees first joined, they would have filled an IRS Form W-4. That's for the Federal Income Tax (FIT), which you have to withhold from their wages and pay to the IRS. The form will let you know the amount you have to withhold from the employees' wages for Federal Income Tax. You then have to pay this amount as a part of your federal payroll taxes.
Alaska Payroll Taxes: Best Practices
It's always a good practice to keep records for payrolls. Otherwise, it's easy to lose track of important details and documents.
Alaska law requires you to keep payroll and accounting records for at least 5 years. Payroll records for each employee should include:
- Start and end dates for each period of work
- Total wages you paid them in each period
- The employee's name and social security number
- Wage rate, method of calculating the wage, hours of work, and wages you paid in each period
- Wages would also include the cash value of non-cash benefits, bonuses, gifts and prizes
In addition to this information, it's useful to keep records of:
- Check stubs and canceled checks for all the payments you make to employees
- Cash receipts
- Payroll journal
- General journal and general ledger
- Copies of all the tax reports you have filed with federal and state agencies
- Copies of relevant forms
Along with this, you need to keep information about your employees such as:
- Names and social security numbers
- Dates of payment
- Amount of each payment
- Bonuses given
- The place they performed the services
Make sure you get the needed details from your employees. When you hire a new employee, make sure they fill up the IRS form W-4 as this will give you important information which will help you with your payroll taxes, particularly federal payroll taxes.
You will also need to hand out a statement to each employee showing the amounts you withheld from their wages as a part of their contributions to unemployment insurance tax in each calendar year. The form usually used for this is the W-2 form. You don't have to file these for Alaska unemployment insurance tax.
Another good business practice is to remember to:
- Report any changes in the ownership, management, or control of your business
- Report any changes in the corporate executive officers of your business
- Report any changes in the managers and members, if your business is a Limited Liability Company
Alaska Payroll Taxes: Summing Up
As an Alaska employer, it is you who will have to handle the quarterly Alaska payroll taxes. That in addition to IRS payroll taxes may seem like a lot but it actually isn't once you nail the basics. You can heave a sigh of relief that you don't have to worry about state income tax withholding as a part of your payroll taxes since Alaska doesn't require this.
How Deskera Can Assist You?
As a business, you must be diligent with the employee payroll system. Deskera People allows you to conveniently manage payroll, leave, attendance, and other expenses. Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.
- For your Alaska payroll taxes, you will have to pay the Alaska unemployment insurance tax, which is called Employment Security Tax.
- You will also have to withhold a percentage of wages to pay toward your employees' contribution to this unemployment insurance tax.
- There is no state income tax on individuals in Alaska so you don't have to worry about withholding income tax from your employees' wages. You will also have to pay the applicable federal payroll taxes.
- Once you register online for Unemployment Insurance Tax and get your employer account number, you begin your filings. You have to submit quarterly contribution reports, which basically include a wage report that determines the tax you pay. You can do this online, along with paying the tax.
- Make sure you keep regular records of certain details about your employees and wage payments as this will be useful for your payroll taxes and is also required under Alaska law.