Does Indiana Have State Income Tax? Rates, Counties, and Deductions

Yes, Indiana does have a state income tax. For the 2026 tax year, the state charges a flat 2.95% on individual income, and every one of Indiana’s 92 counties adds its own local income tax on top.¹² Combined, your total Indiana income tax rate lands somewhere between roughly 3.45% and nearly 6%, depending on where you live.

The Flat State Rate

Indiana does not use graduated brackets. Every filer pays the same percentage of taxable income regardless of earnings or filing status. The 2026 rate is 2.95%, down from 3.0% in 2025 and 3.23% as recently as 2022. It is scheduled to drop again to 2.90% in 2027, with a trigger that could cut it further starting in 2030 if state revenue growth stays on track.¹

The tax applies to your federal adjusted gross income with Indiana-specific modifications. Some items excluded or deducted on your federal return get added back for Indiana purposes, and the state has its own set of deductions and credits that reduce the taxable base before the flat rate hits.

The County Layer

Every Indiana county levies a local income tax. There is no county where you escape this layer.² County rates run from about 0.5% at the low end to 3.0% at the high end, which is why your combined burden varies so much depending on your address.

If you live in Indiana, you pay the rate set by your county of residence as of January 1 of the tax year. That rate applies to your entire adjusted gross income and stays fixed even if you move during the year. Working in a different county does not change what you pay.²

Nonresidents follow a different rule. If your principal place of employment sits in an Indiana county, you pay that county’s rate on your Indiana-sourced income, at the same percentage residents of that county pay.³ The state and county pieces move through a single return administered by the Indiana Department of Revenue, so you handle both at once.

What Reduces Your Indiana Bill

Indiana doesn’t mirror the federal standard-deduction-or-itemize choice. It starts from federal AGI, requires certain add-backs, and then lets you claim its own list of deductions and credits. A few show up on most returns.

Personal and Dependent Exemptions

Every filer claims a $1,000 personal exemption. For a qualifying dependent child, you get an additional $3,000 exemption the first year you claim that child, and $1,500 in each year after.⁴

Renter’s and Homeowner’s Deductions

Renters can deduct up to $3,000 of rent paid on an Indiana home ($1,500 if married filing separately). Homeowners can deduct up to $2,500 of Indiana property tax paid on their principal residence ($1,250 if married filing separately).⁴ Both apply whether or not you itemize federally.

Military Retirement

Indiana fully exempts military retirement pay and survivor’s benefits. The deduction equals the entire amount of military retirement income included in your federal AGI.⁴

Indiana 529 Credit

Contributions to Indiana’s 529 education savings plan earn a credit worth 20% of your contributions, capped at $1,500 per year ($750 if married filing separately). It’s a credit, not a deduction, so it cuts your tax dollar for dollar.⁵

Credit for Tax Paid to Another State

Indiana residents who also paid income tax to another state on the same income can claim a credit. It equals the lowest of three figures: the tax actually paid to the other state, the Indiana rate times the double-taxed income, or your total Indiana liability for the year.⁶ It prevents double taxation but doesn’t always eliminate it when the other state’s rate exceeds Indiana’s.

If You Live Across State Lines

Indiana has reciprocal income tax agreements with six states: Illinois, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin.⁷ If you live in one of those states and your only Indiana income is wages, salary, or commissions, Indiana will not tax that income. You file a simplified Form IT-40RNR with Indiana and pay tax only to your home state.⁸

To stop Indiana withholding at the source, employees from reciprocal states need to file an affidavit of legal residence with their Indiana employer. Skip that step and Indiana tax comes out of your paycheck, which you then have to file to recover.⁷

Reciprocity covers wage-type income only. Rental income from Indiana property, business income from Indiana operations, or gains from selling Indiana real estate remain taxable here even for reciprocal-state residents, and that income goes on Form IT-40PNR.

Nonresidents From Non-Reciprocal States

If you live outside Indiana and outside the six reciprocal states, or if you earn non-wage income from Indiana sources, you generally have to file an Indiana nonresident return. Indiana taxes nonresidents on income derived from or connected with Indiana sources, including wages for work physically performed in the state, rental income from Indiana property, and business income from Indiana operations.⁶ You report only Indiana-sourced income, not your worldwide income.

Watch the 30-day rule. A nonresident employee who works in Indiana for 30 days or fewer during the calendar year owes no Indiana tax on those wages. Cross the 30-day threshold and you owe tax on all your Indiana compensation from day one, not just the days past 30.⁶ Your home state will usually give you a credit for the Indiana tax you pay, though the mechanics vary.

Filing Deadlines

Indiana individual returns are due April 15, matching the federal deadline. Residents file Form IT-40; nonresidents file Form IT-40PNR or Form IT-40RNR depending on their situation.⁹ Electronic filing, payments, and correspondence run through the Department of Revenue’s INTIME portal, and most commercial tax software supports Indiana returns.

An approved federal extension automatically extends your Indiana return. No separate state form is required. You can also request an Indiana-only extension through INTIME or by mailing Form IT-9 before the original deadline. The extended deadline for 2025 returns filed in 2026 is November 16, 2026.¹⁰

An extension buys time to file, not time to pay. Any tax owed after April 15 accrues interest. Penalties are waived only if you pay at least 90% of the tax due by the original deadline and clear the remaining balance plus interest by November 16. Miss either condition and you owe both penalties and interest.¹⁰

What Late Filing or Payment Costs

Filing late without an extension triggers a penalty of $10 per day, capped at $250. That penalty applies even if you owe no tax.¹¹

Unpaid tax accrues interest at 7% annually for the 2026 calendar year, running from the original due date rather than from any later notice.¹² A balance due compounds quickly between the daily filing penalty and the 7% interest, so filing on time matters even when you can’t pay in full.

1
Indiana Department of Revenue. Rates, Fees and Penalties
2
Indiana Department of Revenue. Income Tax Information Bulletin 32
3
Indiana Department of Revenue. Change in Nonresident Tax Rates for Local Income Tax
4
Indiana Department of Revenue. Deductions
5
Indiana Department of Revenue. Indiana 529 Savings Plan Credit
6
Indiana Department of Revenue. Income Tax Information Bulletin 28
7
Legal Information Institute. 45 IAC 3.1-1-115 – Reciprocal Agreement States
8
Indiana Department of Revenue. IT-40PNR Part-Year and Full-Year Nonresident Individual Income Tax Booklet
9
Indiana Department of Revenue. Filing Deadlines
10
Indiana Department of Revenue. Extension of Time to File
11
Indiana Department of Revenue. Fines, Fees and Penalties
12
Indiana Department of Revenue. Departmental Notice 3 – Interest Rates for Calendar Year 2026