Indiana takes 2.95% of your adjusted gross income in state income tax for 2026, plus a county income tax that runs from 0.5% to 3.0% depending on where you live. On purchases, the state adds a flat 7% sales tax with no local add-ons. On real estate, property taxes are constitutionally capped at 1% to 3% of assessed value. How much Indiana actually takes out for taxes in your situation depends mostly on your county, your filing details, and which credits and deductions you qualify for.
The Flat State Income Tax
Indiana uses a single flat rate instead of graduated brackets. For 2026, that rate is 2.95% of adjusted gross income, and the legislature has it scheduled to drop again to 2.90% in 2027.1Indiana Department of Revenue. Rates, Fees and Penalties
The calculation starts with your federal adjusted gross income. Indiana does not offer a standard deduction. Instead, you claim a $1,000 personal exemption for yourself, another $1,000 for a spouse on a joint return, and $1,000 for each dependent.2Indiana Department of Revenue. Income Tax Information Bulletin 117 – Personal Exemptions and Special Rules On a modest income those exemptions make a noticeable dent. On a high income they barely register.
County Income Tax
Every one of Indiana’s 92 counties layers its own income tax on top of the state rate. For 2026 those county rates range from 0.5% in Porter County to 3.0% in Randolph County, with Marion County (Indianapolis) at 2.02%.3Indiana Department of Revenue. Departmental Notice 1 – How to Compute Withholding for State and County Income Tax Two Hoosiers earning identical paychecks can owe meaningfully different amounts based only on where they live.
The rate is set by where you live on January 1 of the tax year, not where you work. Indiana residents who commute to another Indiana county pay their home county’s rate. Nonresidents who work in Indiana but live elsewhere pay the rate of the county where they earn the income.4Indiana Department of Revenue. Income Tax Information Bulletin 32 – General Information on Local Income Taxes County councils can adjust rates at set points during the year, so it’s worth checking the current Departmental Notice #1 before you file.
Sales Tax
Indiana charges a flat 7% sales tax on most purchases statewide. Cities and counties cannot stack their own sales tax on top, so the rate is the same from Gary to Evansville.5Indiana Department of Revenue. Sales Tax
Unprepared grocery food is exempt. Raw chicken, bread, and canned goods ring up tax-free. Prepared food, restaurant meals, soft drinks, candy, and dietary supplements are all taxed at the full 7%.6Indiana General Assembly. Indiana Code 6-2.5-5-20 – Food and Food Ingredients for Human Consumption Prescription drugs dispensed by a pharmacist on a licensed practitioner’s order are also exempt.7Indiana General Assembly. Indiana Code 6-2.5-5-18 – Drugs, Medical Equipment, Supplies Clothing is fully taxable at 7%.
Property Tax Caps
Property taxes are assessed locally, and the rates vary by taxing district. What limits your actual bill is a set of constitutional caps calculated as a percentage of gross assessed value:
- Homesteads (owner-occupied primary residences): 1% of gross assessed value
- Other residential property, agricultural land, and long-term care facilities: 2%
- Commercial, industrial, and all other real and personal property: 3%
If the bill produced by the local rate exceeds the applicable cap, a credit brings it back down.8Indiana General Assembly. Indiana Code 6-1.1-20.6-7.5 – Calculation of Credit
Homestead Deductions
Before the cap even applies, owner-occupiers can file for a homestead deduction that lowers the assessed value used to compute the tax. For taxes payable in 2026, the standard homestead deduction is the lesser of 60% of assessed value or $48,000. A supplemental homestead deduction of 40% then applies to whatever assessed value remains, up to a maximum of 75% of the gross assessed value.9Department of Local Government Finance. Property Tax Deductions and Credits Overview October 2025 You have to file a homestead application with your county auditor to get these. Skipping that filing is one of the most expensive oversights Indiana homeowners make.
Credits That Lower Your Income Tax
Two credits are commonly missed and worth confirming before you file.
Contributions to an Indiana CollegeChoice 529 education savings plan earn a credit equal to 20% of what you put in, capped at $1,500 per year ($750 if married filing separately). Hitting the full $1,500 takes $7,500 in contributions during the year, and the money can be used for higher education or K-12 expenses.10Indiana General Assembly. Indiana Code 6-3-3-12 – Credit for Contributions to College Choice 529 Education Savings Plan
If you qualify for the federal Earned Income Tax Credit, you automatically qualify for an Indiana credit equal to 10% of your federal amount. The Indiana credit is fully refundable, so you receive the money even if it exceeds the tax you owe.11Indiana General Assembly. Indiana Code 6-3.1-21-6 – Earned Income Tax Credit
If You’re Retired
Military retirement pay is fully exempt. Since 2022, 100% of military retired pay can be deducted from your Indiana adjusted gross income.12Indiana Department of Revenue. Income Tax Information Bulletin 6 – Civil Service Annuity Adjustment and Military Retirement or Survivor’s Benefit Deduction
Federal civil service pensions get a partial break. If you’re at least 62 by the end of the tax year, you can deduct up to $16,000 of your federal civil service annuity. The catch: the deduction is reduced dollar for dollar by any Social Security or railroad retirement benefits you receive. A retiree collecting $14,000 in Social Security and $20,000 in a civil service pension would see the deduction shrink to $2,000. A surviving spouse qualifies without the age requirement.13Indiana General Assembly. Indiana Code 6-3-2-3.7 – Remainder of Federal Civil Service Annuity Minus Certain Retirement Benefits Deduction
If You Live Out of State and Work in Indiana
Indiana has reciprocal tax agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Residents of those states who work in Indiana can file Form WH-47 with their employer to stop Indiana state income tax withholding; the wages are then taxed only by the home state.14Indiana Department of Revenue. Certificate of Residence (Form WH-47)
One detail trips people up. Even with Form WH-47 on file, the employer still has to withhold any applicable Indiana county income tax. Reciprocity covers only the state-level tax. The reverse works the same way: an Indiana resident working in one of those five states shouldn’t owe income tax to the work state.
How Indiana Actually Collects It
If you’re an employee, your employer withholds both the 2.95% state tax and your county rate from each paycheck using the residence information you gave at hiring. Move counties and you need to tell your employer promptly, because the wrong county rate on your withholding creates an underpayment or overpayment at filing time.
Self-employed people and anyone with substantial investment or rental income face a different obligation. If you expect to owe $1,000 or more in combined state and county income tax beyond what’s withheld, you have to make quarterly estimated payments. The due dates are April 15, June 15, September 15, and January 15 of the following year.15Indiana Department of Revenue. About Estimated Payments Missing a deadline triggers an underpayment penalty, and the Department of Revenue charges 7% annual interest on unpaid balances for 2026.16Indiana Department of Revenue. Departmental Notice 3 – Interest Rates for Calendar Year 2026
Everyone files on Form IT-40, due April 15 of the year following the tax year. If April 15 falls on a weekend or holiday, the deadline moves to the next business day.17Indiana Department of Revenue. Tax Filing Deadlines
What Indiana Doesn’t Take
Indiana imposes no state estate tax and no inheritance tax. The inheritance tax was repealed for deaths occurring after December 31, 2012. Assets you inherit from an Indiana decedent are subject only to federal estate tax rules.