Indiana does tax retirement income, but not all of it. Social Security benefits and military retirement pay are fully exempt from state income tax. Distributions from 401(k) plans, traditional IRAs, private pensions, and Indiana’s own public pension systems are taxed at the state’s flat rate of 2.95% for the 2026 tax year.1Indiana Department of Revenue. Rates, Fees and Penalties Federal civil service retirees get a partial deduction. On top of the state rate, every one of Indiana’s 92 counties adds its own local income tax, so your final bill depends on where you live.
Income Indiana Does Not Tax
Two categories are off the table entirely.
Social Security. Indiana starts with your federal adjusted gross income and subtracts out any Social Security or railroad retirement benefits included in it.2Indiana General Assembly. Indiana Code 6-3-1-3.5 – Adjusted Gross Income The size of your benefit doesn’t matter, and the rule covers both standard retirement benefits and Social Security disability payments.3Indiana Department of Revenue. Income Tax Information Bulletin 26 – General Information Concerning Filing Requirements and Specific Tax Benefits Available to the Elderly You claim the subtraction on Schedule 1 of the IT-40.4Indiana Department of Revenue. Indiana Individual Income Tax Deductions Schedule Skip that line and you’ll pay state tax on income the law excludes.
Military retirement pay. Indiana exempts 100% of retirement and survivor’s benefits from service in any branch of the armed forces, including reserve components, the National Guard, the Merchant Marine, the Public Health Service Commissioned Corps, and the NOAA Commissioned Officer Corps.5Indiana General Assembly. Indiana Code 6-3-2-4 – Military Service Deduction; Retirement Income or Survivors Benefits Deduction There is no age requirement and no income cap, and a surviving spouse qualifies on the same terms. The deduction goes on Schedule 2 of the IT-40.
Income Indiana Does Tax
If a retirement withdrawal shows up as income on your federal return, it almost certainly shows up on your Indiana return too. There is no general deduction for private pension income at the state level, so these distributions are taxed at the flat 2.95% rate.1Indiana Department of Revenue. Rates, Fees and Penalties
That covers:
- Traditional 401(k) and 403(b) distributions
- Traditional IRA withdrawals
- Private pensions
- Pensions from Indiana’s Public Employees’ Retirement Fund (PERF) and Teachers’ Retirement Fund (TRF), which get no separate state deduction
- Pensions you earned working in another state before moving to Indiana — full-year residents owe Indiana tax on all income reported federally, and federal law bars your former state from taxing a pension once you leave, but nothing stops Indiana from doing so6Indiana Department of Revenue. Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income
- Lump-sum distributions, taxed by your state of legal residence when you receive them
Roth accounts are the exception. Qualified distributions from a Roth 401(k) or Roth IRA are not taxable in Indiana, the same treatment they get federally. A distribution is qualified if you are at least 59½ and the account has been open for at least five years.7LegiScan. Indiana 2025 HB1150 – Fiscal Note 1 Introduced Nonqualified Roth withdrawals, such as pulling earnings before the five-year mark, are taxable at both levels.
Federal Civil Service Annuities: Partial Deduction
If you retired from a non-military federal job, Indiana allows a deduction of up to $16,000 on your civil service annuity. The catch: it’s reduced dollar-for-dollar by any Social Security or railroad retirement benefits you received the same year.8Indiana General Assembly. Indiana Code 6-3-2-3.7 – Remainder of Federal Civil Service Annuity A retiree with $20,000 in civil service annuity income and $18,000 in Social Security has $16,000 minus $18,000, which zeroes the deduction out. In practice, this provision mainly helps retirees who receive little or no Social Security.
You must be at least 62 by the end of the tax year. A surviving spouse can claim it at any age.8Indiana General Assembly. Indiana Code 6-3-2-3.7 – Remainder of Federal Civil Service Annuity
How to Calculate Your Bill: State Plus County
The 2026 state rate is a flat 2.95% applied to taxable income after deductions and exemptions.1Indiana Department of Revenue. Rates, Fees and Penalties A $30,000 traditional IRA withdrawal is taxed at the same rate as a $300,000 one. For a quick state estimate, multiply your taxable retirement income by 0.0295.
Then add county tax. Every Indiana county imposes a local income tax, and for 2026 the rates run from 0.5% in Porter County to 3.0% in Randolph County.9Indiana Department of Revenue. How to Compute Withholding for State and County Income Tax Your rate is set by where you live on January 1 of the tax year, not by where the retirement income originated. Move counties mid-year and you still owe the January 1 county’s rate for that whole year.
The county tax uses the same taxable income base as the state tax, so your deductions reduce both. A retiree in a 1.5% county with $40,000 of taxable pension income pays roughly $1,180 in state tax and $600 in county tax, a combined rate of about 4.45%. Both get reported on the same IT-40.10Indiana Department of Revenue. Individual Income County Tax Rates by Year
Extra Breaks at Age 65
$500 Income Subtraction
Each taxpayer (and spouse, on a joint return) who is 65 or older gets an additional $500 subtraction from adjusted gross income, provided total federal AGI is under $40,000 ($20,000 if married filing separately).2Indiana General Assembly. Indiana Code 6-3-1-3.5 – Adjusted Gross Income The savings are small, roughly $15 per qualifying person, but many retirees whose main income is Social Security fall under the threshold once that exempt income is subtracted out.
Over-65 Property Tax Credit
This reduces your annual property tax bill by up to half the assessed value of your home, with the reduction capped at $48,000 of assessed value, if the home’s assessed value is $240,000 or less. Your federal AGI must be $30,000 or less for a single filer or $40,000 or less for joint filers or co-owners, and those thresholds adjust each year with the Social Security cost-of-living increase.11Indiana General Assembly. Indiana Code 6-1.1-12-9 – Deduction for Person 65 or Older You must have owned the property for at least one year.
Over-65 Circuit Breaker Credit
A separate credit caps annual property tax increases at 2% over the prior year’s bill. Income limits are higher here: $60,000 for an individual and $70,000 for a married couple, both adjusted annually with the Social Security COLA. You must already qualify for the standard homestead deduction. Both property tax credits are filed with your county auditor, not on your state return.
Filing and Estimated Payments
You must file an Indiana return if your gross income exceeds your total exemptions. The exemption is $1,000 per person — one for you, one for a spouse on a joint return, one for each dependent.12Indiana Department of Revenue. Who Should File a Tax Return A married couple filing jointly with no dependents has $2,000 in exemptions. Because Social Security is subtracted out, many retirees whose only income is Social Security will not need to file at all.
Estimated payments trip up a lot of retirees. If you expect to owe at least $1,000 in state and county tax for the year after withholding, you’re required to make quarterly estimated payments.13Indiana General Assembly. Indiana Code 6-3-4-4.1 – Estimated Payments Pension administrators and IRA custodians often don’t withhold Indiana tax automatically, and skipping required payments triggers a 10% penalty on the underpayment for each installment period.14Indiana Department of Revenue. Estimated Payments The fix is simple: either request voluntary Indiana withholding from your plan administrator, or make quarterly payments through the Department of Revenue’s online portal.
No Inheritance or Estate Tax
Indiana repealed its inheritance tax in 2013 and does not impose an estate tax. No returns should be filed for deaths after that date.15Indiana Department of Revenue. Inheritance Tax Information Federal estate tax may still apply to very large estates (the federal exemption is above $13 million per individual for 2026), but Indiana will not tax what you leave to heirs.