Indiana Income
Tax Rates & Rules

Indiana uses a flat 2.95 percent individual adjusted gross income tax rate for 2026, but the state tax is only one part of the calculation. Indiana counties also impose local income tax, so the final state and county burden depends on both taxable income and county status.

Indiana Income Tax Has Two Main Layers

The first layer is Indiana's statewide individual adjusted gross income tax. The second is county local income tax, often called LIT. A taxpayer can owe both taxes on the same Indiana income.

Under current law, Indiana's state individual income tax rate is scheduled to decrease from 2.95 percent in 2026 to 2.90 percent in 2027.

How Indiana Taxable Income Is Calculated

Indiana starts with federal adjusted gross income from Form 1040 or 1040-SR. The state then applies Indiana add-backs, deductions and exemptions to determine Indiana adjusted gross income subject to the 2.95 percent state rate.

• Start with federal adjusted gross income.
• Add back items Indiana requires to be restored to income.
• Subtract Indiana deductions that apply to the taxpayer.
• Subtract Indiana personal and dependent exemptions.
• Apply the 2.95 percent state income tax rate.
• Calculate county income tax separately through the applicable county schedule.
• Apply credits, withholding and estimated payments to determine the refund or balance due.

Indiana does not simply apply 2.95 percent to gross salary. Federal AGI, Indiana adjustments and exemptions can change the state tax base before the rate is applied.

Indiana Personal and Dependent Exemptions Reduce Taxable Income

Indiana allows personal and dependent exemptions that can reduce the income subject to state tax. Current Indiana guidance provides a $1,000 exemption for each federal exemption claimed, with additional amounts available for certain dependent children, qualifying adopted children, taxpayers or spouses age 65 or older plus taxpayers or spouses who are blind.

Indiana also provides an additional $500 exemption for certain taxpayers age 65 or older when federal adjusted gross income is below the state threshold. These exemptions are part of the annual return calculation and should not be confused with the federal standard deduction.

Indiana County Income Tax Rates Matter in 2026

Indiana county income tax rates are not uniform. Departmental Notice #1 lists the county rates effective January 1, 2026 and explains how county status is determined for withholding and tax purposes.

The January 1 schedule ranges from 0.50 percent in Porter County to 3.00 percent in Randolph County. County rates can be adjusted, so taxpayers and employers should check the most current Departmental Notice #1 before relying on a rate later in the year.

Which County Rate Applies?

Indiana generally determines county status using the taxpayer's county of residence and principal place of business or employment on January 1. If an individual lives in an Indiana county on January 1, the county of residence generally controls. A person who lives outside Indiana but has a principal Indiana work location can be subject to the county rules tied to that workplace.

This January 1 rule is one reason a county tax estimate can differ from a simple city-based calculator. A move later in the year does not automatically change the county status used for the entire tax-year calculation.

For paycheck-level state and county withholding estimates, use the Indiana paycheck calculator with current county information.

Who Must File an Indiana Income Tax Return?

Indiana filing obligations depend on residency, Indiana-source income and exemptions. A full-year resident generally must file when gross income exceeds total allowable exemptions. Indiana describes $1,000 or more of income as a practical rule of thumb, but the actual filing test is based on income compared with exemptions.

Part-year residents with income while living in Indiana and nonresidents with Indiana-source income generally have filing obligations. Filing can also be worthwhile when state or county tax was withheld and a refund may be due.

Choose the Indiana Return Based on Residency

Indiana uses different individual income tax forms for full-year residents, part-year residents, nonresidents and qualifying reciprocal-state residents.

Indiana individual income tax returns are generally due April 15 following the end of the tax year. An extension gives more time to file, but it does not extend the time to pay tax that is due.

Indiana Has Wage-Tax Reciprocity With Five States

Indiana has reciprocal wage agreements with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin. A qualifying resident of one of these states whose Indiana income consists only of wages, salaries, tips or commissions generally files Form IT-40RNR instead of paying Indiana state income tax on that compensation.

Reciprocity is limited to employee compensation. Indiana business income, rental income, gambling winnings or other Indiana-source income can still require Form IT-40PNR and can still be taxable to Indiana.

The 30-Day Rule Can Protect Some Nonresident Employees

Indiana has a 30-day safe harbor for certain nonresident employees. A qualifying nonresident who performs employment duties in Indiana for 30 days or less during the calendar year can deduct those wages from Indiana adjusted gross income and can also qualify for withholding relief when the state requirements are met.

The rule does not apply to every worker or every type of income. Employers may use Form WH-4AFF and qualifying time-and-location records. If the employee exceeds the 30-day limit, Indiana withholding can become due on wages from the earlier workdays as well as later days, subject to other exceptions such as reciprocity.

Indiana Withholding Uses Form WH-4

Employees use Form WH-4 to report withholding exemptions and county status to the employer. The form asks for county of residence and county of principal employment as of January 1 because those fields help determine county withholding.

Withholding is a prepayment, not the final tax calculation. An employee can owe more tax or receive a refund after the annual state and county calculation is completed.

Indiana Deductions Can Reduce Adjusted Gross Income

Indiana has state-specific deductions that can reduce adjusted gross income when eligibility requirements are met. Examples include deductions for certain Social Security or retirement-related amounts, military income, qualified education expenses and the 30-days-or-less nonresident wage deduction.

Military retirement pay received by an Indiana resident is deductible in full under current Indiana guidance. Other military pay deductions depend on the type of service income and the rules in the applicable state information bulletin.

Capital Gains and Investment Income Are Generally Part of Indiana AGI

Indiana generally begins with federal AGI, so capital gains and investment income included in federal AGI normally flow into the Indiana calculation unless a specific Indiana deduction or sourcing rule applies.

For nonresidents, interest, dividends and gains from capital assets are generally taxed by the state of legal residence unless the income is connected with conducting a trade or business in Indiana. Indiana real property or business activity can create different sourcing results.

Payroll Withholding and Annual Indiana Tax Are Different

A paycheck shows state and county withholding for one pay period while the annual return determines final Indiana tax after all income, deductions, exemptions and credits are included. County tax can make the annual result especially different from a simple flat-rate estimate.

Employers who need to document verified wages and withholding can use the Indiana pay stub generator. For general lawful payroll record creation, an online paystub generator should be used only with genuine employment and compensation information.