What Are the Different Taxes in Indiana?

Indiana’s tax system encompasses various levies that contribute to the state’s revenue. The structure includes broad-based taxes on income, consumption, and property, alongside specific excise taxes on certain goods and services. Each tax type has distinct rules regarding its application, rates, and any available exemptions or deductions.

Understanding Indiana’s Individual Income Tax

Indiana imposes a flat state individual income tax rate. For the 2024 tax year, the state income tax rate is 3.15%. This tax applies to both residents and non-residents who earn income from Indiana sources. Residents are generally taxed on their worldwide income, while non-residents are taxed only on income derived from activities within Indiana.

Beyond the state income tax, most Indiana counties impose a County Adjusted Gross Income Tax (CAGIT), often referred to as a local income tax. Each county sets its own rate, which can vary significantly. An individual’s county of residence on January 1st of the tax year generally determines which county’s tax rate applies to their income.

Income subject to CAGIT includes wages, salaries, and other forms of taxable income, similar to how federal adjusted gross income is calculated. Employers withhold both state and county income taxes from employee paychecks. Taxpayers can claim certain deductions at the state level, such as a deduction for certain retirement plan contributions or military pay, which reduce their taxable income before the state rate is applied.

Non-residents working in Indiana are also subject to the county income tax of the Indiana county where they primarily work or conduct business. The combination of state and county income taxes forms the total individual income tax burden for most Hoosiers.

Indiana Sales Tax

Indiana levies a statewide sales tax on the retail sale of most goods and some services. The current state sales tax rate is 7%. This tax is applied at the point of sale by retailers, who then remit the collected funds to the Indiana Department of Revenue.

Tangible personal property items include general merchandise, vehicles, and many common consumer goods purchased in stores or online for use in Indiana. While most goods are taxed, certain services may also be subject to sales tax if specifically designated by state law, although the general rule is that services are not taxed unless explicitly stated.

Indiana law provides specific exemptions from sales tax for certain items. Groceries, or food for human consumption off the premises where it is sold, are generally exempt from sales tax. Prescription drugs and medical devices, along with residential utilities such as electricity, natural gas, and water, are also exempt. Indiana does not permit local sales taxes; the 7% rate is uniform across all counties.

Indiana Property Tax

Property taxes in Indiana are primarily levied by local units of government, such as counties, townships, and municipalities, to fund local services like schools, police, and fire departments. County assessors determine the market value of land and improvements. This assessed value, not the purchase price, forms the basis for property tax calculations.

Tax rates are then applied to this assessed value, typically expressed as a rate per $100 of assessed value. These rates vary widely depending on the local taxing units that serve a specific property’s location. A property’s tax bill is calculated by multiplying its net assessed value (after deductions) by the combined local tax rates.

Indiana has property tax caps, commonly known as “circuit breaker credits,” which limit the amount of property tax that can be billed. For homesteads (owner-occupied primary residences), the property tax bill is capped at 1% of the gross assessed value. Rental properties and agricultural land are capped at 2% of their gross assessed value, while business personal property and other real estate are capped at 3%.

Homeowners can benefit from several deductions that reduce their assessed value before the tax rate is applied. The most common is the homestead deduction, which applies to a taxpayer’s principal place of residence and significantly reduces the taxable portion of the property’s value. Other deductions may include deductions for mortgage, veterans, or certain disabled individuals, further lowering the taxable assessment and, consequently, the property tax bill.

Other Common Indiana Taxes

Indiana imposes various excise taxes on specific goods and activities. Gasoline, for example, is subject to a motor fuel tax, which contributes to funding road construction and maintenance. Alcoholic beverages and tobacco products also have specific excise taxes levied on their sale, with revenues often directed towards general funds or specific health-related initiatives. These taxes are typically included in the product’s price at the point of sale.

When registering a vehicle in Indiana, owners pay an annual vehicle excise tax rather than a property tax on their vehicle. The amount of this excise tax depends on the vehicle’s age and its original factory price. This tax is paid to the Bureau of Motor Vehicles as part of the annual registration process.

Indiana does not impose an inheritance tax or an estate tax. This means heirs do not pay a state-level tax on inherited assets, nor does the estate pay a state tax on its total value before distribution.

While this article focuses on taxes relevant to individuals, businesses operating in Indiana also face their own set of taxes. These can include corporate income tax, which is levied on a company’s profits, and withholding taxes on employee wages.