Indiana Local Tax Withholding: County Rates, WH-4, and Remittance

Indiana local tax withholding means withholding a county income tax from every employee’s wages in addition to the state’s flat 2.95% individual income tax rate for 2026.¹ All 92 counties impose a local income tax, with 2026 rates running from 0.5% in Porter County to 3.0% in Randolph County.² The rate you apply for each employee depends on where that employee lived and worked on a single date: January 1.

Which County’s Rate Applies

Indiana fixes an employee’s county tax obligation based on residence and workplace as of January 1 of the tax year. A move on January 2 or any later date has no effect on that year’s withholding. The January 1 county controls the full twelve months.³

Residence takes priority over workplace. If an employee lives in an Indiana county, that county’s rate applies no matter where they commute. The county of employment matters only when the employee lives outside every adopting Indiana county, or outside the state entirely. The Indiana Administrative Code puts it plainly: the January 1 county of residence and principal place of business alone determine local tax liability for the year.⁴

When Residence Isn’t Obvious

Indiana runs a four-step tiebreaker for unclear cases. First, the county where the person maintains a home; if there’s only one Indiana home, that county wins. Second, the county of voter registration. Third, the county of vehicle registration. Only if none of those apply does the state look to where the individual spent the most time in Indiana.³

Employees Who Live Out of State

An employee who lives outside Indiana but works in an Indiana county still owes local income tax on the Indiana wages. The applicable county is the one where the worker receives the greatest percentage of their Indiana gross income.⁵ Indiana generally does not require withholding for nonresidents who spend 30 days or fewer in the state during the year.

The Reciprocity Trap

Indiana has reciprocal income tax agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Employees who live in one of those states and work in Indiana can file Form WH-47 with their employer to claim exemption from Indiana state income tax withholding.⁶

Reciprocity does not reach county tax. An Ohio resident working in Marion County still owes Marion County’s local rate on the Indiana wages, and the Indiana Administrative Code says so directly: reciprocal agreements do not affect a taxpayer’s liability for local income tax.⁵ Keep withholding the county tax after accepting a WH-47.

Form WH-4 at Onboarding

Every employee completes Form WH-4, the Employee Withholding Exemption and County Status Certificate, available on the Department of Revenue’s withholding tax forms page.⁷ The form captures the January 1 county of residence, the January 1 county of principal employment, and the number of personal exemptions claimed. Employers are entitled to rely on the employee’s stated county of residence when setting up payroll.⁸

Employees have two follow-up duties. If exemptions decrease, they must file an updated WH-4 within 10 days. If they change their county of residence or principal work county, they must submit a new form by January 1 of the following year.⁹ Retain every completed WH-4 as documentation for your withholding decisions.

Calculating the County Withholding

The Department of Revenue publishes Departmental Notice #1 annually, listing every county’s rate and providing deduction constant tables for calculating withholding.² The basic calculation: subtract exemptions from gross wages to find the taxable base, then multiply by the employee’s county rate for the pay period.

Bonuses and Other Nonperiodic Pay

Bonuses are handled differently. Departmental Notice #1 directs that withholding on nonperiodic payments such as bonus checks be calculated without applying any exemptions.² The county rate is unchanged; the full bonus becomes the taxable base.

Rate Changes During the Year

County rates can be adjusted in January and October.¹ The rates in Departmental Notice #1 apply to pay periods beginning on or after January 1 of the notice year.² When a county changes its rate in October, the Department issues updated guidance. Check for mid-year updates so you don’t underwithhold. The county assignment itself doesn’t move; only the rate on that fixed county can change.

How Often You Remit

Filing frequency depends on your average monthly withholding:

Annual filers: average monthly withholding of $83.33 or less. Payments due 30 days after the end of the period.
Monthly filers: average monthly withholding of $1,000 or less. Payments due 30 days after the end of each month.
Early filers: average monthly withholding above $1,000. Payments due 20 days after the end of each month.

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Filing and payment go through the Indiana Taxpayer Information Management Engine (INTIME), the state’s online portal.¹¹ State and county withholding are remitted together. INTIME issues a confirmation number for each payment; save it in case a filing gets questioned later.

Year-End Reconciliation

By January 31 each year, employers file Form WH-3, the annual withholding reconciliation. It reports total state and county tax withheld during the prior year and ties that number to the individual W-2s issued.⁷ Employers filing more than 25 W-2s in a calendar year must submit both the W-2s and the WH-3 electronically.¹²

W-2s must reach employees no later than 30 days after the end of the calendar year, showing total state income tax and any county income tax withheld.⁸ Mismatches between the WH-3 total and the sum of the W-2s are a common trigger for Department inquiries, so verify the reconciliation before filing.

Penalties

Indiana imposes a 10% penalty on the tax due when an employer fails to file a withholding return, fails to pay the full amount shown, or fails to remit withheld taxes on time.¹³ Interest accrues on top of the penalty from the original due date, at a rate the Department sets each year.

Certain pass-through entities face steeper exposure. A corporation, partnership, or trust that fails to withhold required amounts faces a 20% penalty on the tax that should have been withheld, on top of any other applicable penalties.¹³ Even a zero-liability return filed late carries $10 per day, capped at $250.

1
Indiana Department of Revenue. Rates, Fees & Penalties
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Indiana Department of Revenue. Departmental Notice #1
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Indiana General Assembly. Indiana Code Title 6 Article 3.6 – Section 6-3.6-8-3
4
Indiana General Assembly. 45 IAC 3.1-4-4
5
Cornell Law Institute. Indiana Administrative Code 45 IAC 3.1-4-8
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Indiana Department of Revenue. Certificate of Residence – Form WH-47
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Indiana Department of Revenue. Withholding Tax Forms
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Indiana General Assembly. Indiana Code Title 6 Taxation 6-3-4-8
9
Cornell Law Institute. Indiana Administrative Code 45 IAC 3.1-1-102
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Indiana Department of Revenue. Business FAQ
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Indiana Department of Revenue. INTIME
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Indiana General Assembly. Indiana Code Title 6 Article 3 – Section 6-3-4-16.5
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Indiana General Assembly. Indiana Code Title 6 Article 8.1 – Section 6-8.1-10-2.1