Yes, Indiana does have an income tax. For the 2026 tax year, Indiana charges a flat 2.95% state income tax on your Indiana adjusted gross income, and every one of the state’s 92 counties adds its own local income tax on top.1Indiana Department of Revenue. Rates, Fees and Penalties The flat rate has been stepping down for several years: 3.05% in 2024, 3.0% in 2025, 2.95% in 2026, and 2.9% scheduled for tax years beginning after December 31, 2026.2CCH AnswerConnect. Indiana – Rates of Tax – Income Taxes, Personal So your real tax rate is the state rate plus whatever your county charges, and the county piece can double your effective rate or more.
How the Flat State Rate Is Applied
Indiana doesn’t use graduated brackets. Everyone pays the same percentage, no matter how much they earn. The calculation starts with the federal adjusted gross income from line 11 of your Form 1040, then applies Indiana-specific add-backs and subtractions to arrive at your Indiana AGI.3Indiana Department of Revenue. Your Indiana Tax Return Line By Line
Instead of a standard deduction, Indiana uses personal exemptions. You get $1,000 for yourself and $1,000 for each dependent.4Indiana Department of Revenue. Income Tax Information Bulletin 117 – Personal Exemptions and Special Rules Qualifying dependents also generate an additional $1,500 exemption each.5Indiana Department of Revenue. Deductions Subtract exemptions and any deductions from your Indiana AGI, multiply what’s left by 2.95%, and that’s your state tax before credits.
County Income Taxes Are On Top
This is the part most people miss. All 92 Indiana counties impose a local income tax, and the range is wide. Porter County sits at 0.5%; Randolph County charges 3.0%. Most counties fall between 1.0% and 2.5%.6Indiana Department of Revenue. 2024 Indiana County Income Tax Rates and County Codes Rates can change in January and October each year, so check the current list for your county.
Your county rate is set by where you lived on January 1 of the tax year. Move to a different Indiana county on January 2 and you still owe the full year’s county tax to your old county.7Indiana Department of Revenue. How to Compute Withholding for State and County Income Tax For residents, the county tax applies to your entire adjusted gross income, not just income earned inside that county.
If you live out of state but your principal workplace is in an Indiana county as of January 1, you owe that work county’s tax, but only on your Indiana-sourced earnings.7Indiana Department of Revenue. How to Compute Withholding for State and County Income Tax
Who Has to File a Return
If you were a full-year Indiana resident and your gross income was more than your total personal exemptions, you have to file. A single person with no dependents hits that threshold at $1,000, since one personal exemption is $1,000.8Indiana Department of Revenue. Who Should File a Tax Return? Leaving Indiana temporarily doesn’t change your status. If you kept your legal home in Indiana for the whole year, all of your income is taxable here, no matter where you earned it.
Indiana residents who earned income in another state and paid tax there can claim a credit for taxes paid to the other state, which prevents being taxed twice on the same dollars.
What Can Lower Your Indiana Tax
A few state-level breaks are worth knowing about before you file.
Indiana 529 Credit
Contributions to an Indiana 529 education savings plan earn a 20% state income tax credit, capped at $1,500 per year ($750 if married filing separately).9Indiana General Assembly. Indiana Code 6-3-3-12 – Credit for Contributions to College Choice 529 Education Savings Plan Reaching the full $1,500 takes $7,500 in contributions. Because it’s a credit, it reduces your tax dollar for dollar.
Renter’s Deduction
If you rent your primary Indiana residence and the property is subject to Indiana property tax, you can deduct up to $3,000 of rent paid during the year.10Indiana General Assembly. Indiana Code 6-3-2-6 – Deduction Rent Payments
Property Tax Deduction
Homeowners can deduct up to $2,500 of Indiana property taxes paid on their principal residence, or $1,250 if married filing separately.5Indiana Department of Revenue. Deductions
Military Retirement Pay
Military retirement income is fully deductible from Indiana AGI. The full exemption was phased in and reached 100% for tax years beginning after 2021.11Indiana General Assembly. Indiana Code 6-3-2-4 – Military Service Deduction Retirement Income or Survivors Benefits Deduction
Indiana Earned Income Credit
If you qualify for the federal EITC, Indiana adds a state credit worth 10% of your allowed federal amount.12Internal Revenue Service. States and Local Governments With Earned Income Tax Credit
Social Security and Retirement Income
Indiana does not tax Social Security benefits. If any portion of your Social Security was included in your federal AGI, Indiana lets you deduct the full amount back out on the state return.13Indiana Department of Revenue. Income Tax Information Bulletin 26 Railroad retirement benefits get the same treatment.
If You Live or Work Across a State Line
Indiana has reciprocal income tax agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. If you live in one of those states and earn wages in Indiana, you report and pay state income tax only to your home state. Indiana residents earning wages in a reciprocal state report the income as Indiana income and should seek a refund of any tax the other state withheld rather than claiming a credit.14Indiana Department of Revenue. Income Tax Information Bulletin 28
One important limit: reciprocity covers only the state income tax, not the county tax. A Kentucky resident working in an Indiana county still owes that county’s local income tax on their Indiana wages.15Indiana Department of Revenue. Withholding Requirements for Nonresident Employees – Information Bulletin 33 Individual counties can enter their own local reciprocity arrangements, but that happens case by case and is not the norm.16Indiana General Assembly. Indiana Code 6-3.6-8-4 – Reciprocity Agreements for Exemption From Tax Local Governmental Entities