What Is the Income Tax Rate in Indiana?
Understand your Indiana individual income tax. Clarifies state and local components and how your income is assessed.
Indiana operates an income tax system for individuals that includes both a state-level income tax and varying local county income taxes. This structure requires taxpayers to understand how their income is assessed at both levels.
Indiana State Income Tax
Indiana imposes a flat individual income tax rate, meaning all taxable income is subject to the same percentage. For 2024, the state income tax rate is 3.05%. This rate applies uniformly to an individual’s adjusted gross income as determined for Indiana tax purposes. The state plans to gradually reduce this rate, with a decrease to 3.00% for 2025 and further reductions to 2.9% by 2027.
Indiana’s flat rate simplifies state-level tax calculations as there are no progressive tax brackets. It is applied to income after all state-specific adjustments have been made to the federal adjusted gross income.
County Income Tax Rates
All Indiana counties levy their own local income taxes, known as County Adjusted Gross Income Tax (CAGIT). These rates vary from county to county, ranging from 0.5% to 3.0%.
The applicable county tax rate depends on an individual’s residency or primary employment location as of January 1 of the tax year. If an individual resides in an Indiana county on January 1, that county’s rate applies. For those residing out-of-state but having a principal place of work or business in an Indiana county on January 1, the county tax rate of their principal place of employment applies. Taxpayers should consult the Indiana Department of Revenue (DOR) website to verify specific rates.
Determining Indiana Taxable Income
Indiana’s method for calculating taxable income begins with an individual’s federal adjusted gross income (AGI). From this federal starting point, specific Indiana additions and subtractions are applied to arrive at the state’s adjusted gross income, which is the base for both state and county income taxes. This process ensures that certain income types are either included or excluded according to Indiana law.
Common additions to federal AGI for Indiana purposes can include state income taxes deducted as business expenses on federal Schedules C, E, or F. Other additions may involve net operating loss deductions, certain bonus depreciation amounts, and Section 179 expense deductions exceeding $25,000. Additionally, interest earned from direct obligations of states or political subdivisions other than Indiana must be added back.
Conversely, various subtractions may reduce the taxable income. These can include military retirement pay, certain civil service pensions for individuals 62 or older, and Social Security benefits, which are generally not taxed by Indiana. Deductions for rent paid on an Indiana residence and property taxes paid on a principal residence may also be available.
Filing and Payment Requirements
Individuals residing in Indiana must file an Indiana individual income tax return, typically Form IT-40, if their gross income exceeds their total exemptions claimed. The annual deadline for filing Indiana individual income tax returns is April 15, consistent with the federal deadline.
If a taxpayer requires more time to file, an extension can be requested, which generally extends the filing deadline to November 15. An automatic extension to file is granted if a federal extension is obtained. However, an extension to file does not extend the deadline for paying any taxes due, and penalties and interest may apply to underpayments made after April 15.
Many taxpayers satisfy their tax obligations through employer withholding. Those with income not subject to withholding, such as self-employment income, may need to make estimated tax payments throughout the year if they expect to owe $1,000 or more in state and county tax. These estimated payments are due quarterly on April 15, June 15, September 15, and January 15 of the following year.