How Much Does Indiana Take Out for Taxes?

Indiana’s tax structure involves various levies that contribute to state and local government funding. Understanding these different taxes, from income to sales and property, provides clarity on an individual’s financial obligations within the state. These taxes support public services and infrastructure across Indiana.

Indiana State Income Tax Rates

Indiana imposes a flat state individual income tax rate. For income earned in 2024, the state income tax rate is 3.05%. This rate is part of a legislative plan to gradually reduce the state’s income tax, with further decreases anticipated in future years, reaching 2.9% by 2027.

Indiana offers personal exemptions that reduce taxable income. For the 2024 tax year, individuals can claim a $1,000 exemption for themselves. If filing jointly, a $1,000 exemption can also be claimed for a spouse, and an additional $1,000 is available for each qualifying dependent.

Beyond personal exemptions, Indiana provides various deductions that can further reduce an individual’s adjusted gross income for state tax purposes. One notable deduction allows taxpayers to deduct up to $2,500 of Indiana property taxes paid on their principal place of residence. Other available deductions include those for interest income from U.S. government obligations, certain military retirement income, and civil service annuity payments.

Indiana Local Income Tax Rates

In addition to the statewide income tax, all 92 counties in Indiana levy their own local income taxes, which significantly impact the overall tax burden for residents. For the 2024 tax year, county income tax rates range from as low as 0.50% to as high as 3.00%.

The determination of which county’s local income tax rate applies generally depends on an individual’s county of residence on New Year’s Day of the tax year. If an individual resides out-of-state but works in an Indiana county, their local income tax withholding is based on the tax rate for the Indiana county where they work on New Year’s Day. The full county rate applies regardless of residency status.

Local income taxes are assessed on an individual’s Indiana adjusted gross income. For non-residents, income derived from Indiana sources is subject to county tax at the same rate as resident taxpayers if their principal place of business or employment is in an Indiana adopting county. Employers are generally required to withhold county income tax based on these rules, which can be verified through an employee’s Indiana Form WH-4.

Indiana Sales Tax Rates

Indiana maintains a single statewide sales tax rate of 7% on the retail sale of most goods. The 7% rate is consistent across all cities and counties. The sales tax applies to tangible personal property purchased for use, storage, or consumption within Indiana.

Several significant exemptions are in place for essential items. Most non-prepared food items, such as groceries purchased for home consumption, are exempt from sales tax. Prescription drugs and medical supplies also fall under these exemptions.

Certain customers or transactions may qualify for sales tax exemptions. For instance, sales to non-profit organizations, governmental agencies, and purchases made for resale by businesses are typically exempt. To claim an exemption, a valid exemption certificate, such as Form ST-105, must be provided to the vendor at the time of purchase.

Indiana Property Tax Calculation

Property taxes in Indiana are assessed at the county level and are based on the assessed value of real property, including land and improvements. County assessors determine the assessed value of each property, aiming to reflect its market value-in-use. This valuation process involves analyzing factors such as property size, age, construction specifics, and local market trends. Once the gross assessed value is established, it is typically set at 100% of the market value.

After the gross assessed value is determined, various deductions can be applied to reduce the taxable value of the property, known as the net assessed value. The most common is the homestead deduction, available for owner-occupied primary residences. This deduction reduces the assessed value by 60% or a maximum of $45,000, whichever is less. An additional supplemental homestead deduction further reduces the value by a percentage of the remaining assessed value after the standard deduction.

Indiana also features property tax caps, which limit the maximum amount of property tax that can be collected based on a percentage of the property’s gross assessed value. For owner-occupied primary residences, the property tax liability is capped at 1% of the gross assessed value. Other residential properties and agricultural land are capped at 2%, while other real property and personal property are capped at 3%. These caps are codified in Indiana Code Section 6-1.1-20.6.