How Much Is Income Tax in Indiana? State & Local Rates

Indiana’s income tax system involves both a state-level levy and additional county-specific taxes. The total amount an individual pays in income tax depends on their taxable income, where they reside or work within Indiana, and any applicable deductions or credits. This structure means that the total income tax burden can vary significantly from one county to another.

Indiana State Income Tax Rates

Indiana imposes a flat state income tax rate on all taxpayers, regardless of their income level. For the 2024 tax year, the state income tax rate is 3.05%. This rate applies uniformly across all taxable income, a characteristic that differentiates it from federal income tax, which uses a progressive tax bracket system.

The state has enacted legislation to gradually reduce this rate in the coming years. The rate is scheduled to decrease to 3.00% for the 2025 tax year and is planned to reach 2.9% by 2027. The state component of Indiana’s income tax is a foundational element in calculating an individual’s total tax obligation.

Indiana Local Income Tax Rates

All 92 Indiana counties levy their own local income taxes. In 2024, these local rates can range from as low as 0.50% to as high as 2.95%, depending on the specific county. The combined effect of the state and local income taxes means that an individual’s overall income tax rate can reach 6% or more. Individuals determine their specific local income tax rate based on their county of residence or their principal place of employment. The Indiana Department of Revenue (DOR) regularly publishes updated lists of these county income tax rates, often with changes taking effect at the beginning of the year or in October.

Adjustments to Your Taxable Income

Indiana provides personal exemptions that directly lower an individual’s taxable income. Taxpayers can claim a $1,000 exemption for themselves. An additional $1,000 exemption is available for a spouse if filing jointly, or separately if the spouse has no income.

A $1,000 exemption can also be claimed for each qualifying dependent. Furthermore, taxpayers aged 65 or older, or those who are blind, may qualify for an additional $1,000 exemption. For dependents claimed for the first time, an enhanced exemption of $3,000 may be available instead of the standard $1,500.

Other specific deductions can also decrease taxable income. For instance, active-duty military compensation is 100% deductible starting in 2024. Nonresident employees who work in Indiana for 30 days or less during the calendar year may also be eligible for a deduction, with certain exceptions for professional athletes or entertainers. Payments made to health care sharing ministries are also deductible.

Indiana Tax Credits

Tax credits differ from deductions because they directly reduce the amount of tax owed, rather than lowering taxable income. Credits are applied to decrease the final tax bill dollar-for-dollar.

One common credit is the Unified Tax Credit for the Elderly, available to those aged 65 or older with a federal adjusted gross income below $10,000. This credit can range from $40 to $140. Individuals who qualify for the federal Earned Income Credit may also claim an Indiana Earned Income Credit, which is 10% of the federal amount as calculated before 2009.

A new credit for 2024 is the ABLE 529A Account Credit, which provides a non-refundable credit of up to $500 or 20% of contributions to an Indiana ABLE account, whichever is less. The state also offers an adoption credit, allowing up to 20% of the federal adoption credit or $2,000 per child, whichever is less. Other credits include the Lake County Residential Income Tax Credit for eligible residents and various business-related credits like the Physician Practice Ownership Credit and the Attainable Homeownership Tax Credit.

Calculating Your Indiana Income Tax

The process begins with your federal adjusted gross income (AGI), which serves as the starting point for Indiana tax calculations. From this federal AGI, you will apply Indiana-specific additions and subtractions. These adjustments include the personal exemptions for yourself, your spouse, and any dependents, as well as specific deductions like military compensation or health care sharing ministry payments. This step results in your Indiana taxable income.

Next, you apply the flat state income tax rate to this taxable income. Subsequently, the applicable local income tax rate for your county of residence or principal employment is also applied to your Indiana taxable income. The sum of the state and local tax calculations represents your total tax liability before credits.

Finally, any qualified Indiana tax credits, such as the Unified Tax Credit for the Elderly or the ABLE 529A Account Credit, are subtracted directly from this total tax amount. The remaining figure is your final Indiana income tax owed.