Indiana State Income Tax: Rate, County Taxes, and Filing Rules 2026

Indiana has a flat individual income tax rate of 2.95% for the 2026 tax year. Taxpayers may also owe a county local income tax, known as LIT, with 2026 rates ranging from 0.50% to 3.00%. This means a taxpayer’s combined Indiana state and county marginal rate can range from 3.45% to 5.95%, depending on the applicable county.

The state rate is scheduled to fall to 2.90% in 2027 under current Indiana law. County rates are separate from the state rate and can be updated in January or October.

Indiana State Income Tax at a Glance

Indiana begins its income tax calculation with federal adjusted gross income. State additions, deductions, exemptions and credits are then applied to determine Indiana adjusted gross income and the final tax liability.

Does Indiana Have a State Income Tax?

Yes, Indiana imposes an individual state income tax on residents and on qualifying Indiana-source income earned by nonresidents. The state uses a flat rate rather than progressive income tax brackets.

Indiana income tax can apply to:

1. Wages and salaries
2. Tips and commissions
3. Bonuses
4. Business and self-employment income
5. Rental income
6. Interest and dividends
7. Capital gains
8. Taxable retirement distributions
9. Gambling winnings
10. Pass-through business income

Indiana income tax is separate from federal income tax. Most Indiana residents also pay a county income tax in addition to the 2.95% state rate.

What Is the Indiana Income Tax Rate for 2026?

The Indiana individual adjusted gross income tax rate is 2.95% for income earned during the 2026 tax year. The same rate generally applies to single filers, married couples and higher-income taxpayers.

Indiana does not have multiple state tax brackets. A taxpayer with $50,000 of Indiana adjusted gross income and a taxpayer with $500,000 generally use the same 2.95% state rate.

The state rate is scheduled to decline to 2.90% beginning in 2027. This reduction does not automatically reduce county income tax rates, which are set separately.

Indiana Income Tax Example

Suppose a taxpayer has $75,000 of federal adjusted gross income and claims $2,000 in Indiana exemptions and deductions.

County income tax would then be added. A taxpayer subject to a 2% county rate would owe approximately another $1,460 before credits and other adjustments.

The simplified combined amount would be:

1. Indiana state tax: $2,153.50
2. County income tax: $1,460
3. Total state and county tax: $3,613.50

Actual tax can differ because of deductions, exemptions, credits, nonresident allocation and county-specific calculations.

How Is Indiana Taxable Income Calculated?

Indiana generally begins with federal adjusted gross income and applies state-specific additions, deductions and exemptions. The 2.95% rate is applied after these adjustments.

The basic calculation follows these steps:

1. Complete the federal income tax return.
2. Transfer federal adjusted gross income to the Indiana return.
3. Add income or deductions that Indiana treats differently.
4. Subtract qualifying Indiana deductions.
5. Claim personal and dependent exemptions.
6. Calculate state tax at 2.95%.
7. Calculate applicable county income tax.
8. Subtract credits, withholding and estimated payments.

Indiana deductions reduce income subject to tax, while tax credits directly reduce the amount owed. Add-backs increase Indiana income when a federal deduction is not recognized for state purposes.

Indiana Personal and Dependent Exemptions

Indiana provides personal and dependent exemptions that reduce adjusted gross income before state and county taxes are calculated.

Current Indiana exemptions include:

1. $1,000 for the taxpayer
2. $1,000 for a qualifying spouse
3. $1,000 for most qualifying dependents
4. $1,500 for certain dependent children
5. $3,000 for qualifying adopted children
6. Additional exemptions for eligible taxpayers who are at least 65 or blind

An additional $500 exemption can apply to a taxpayer or spouse who is at least 65 when federal adjusted gross income is below $40,000, or $20,000 for married taxpayers filing separately.

The available exemption amount depends on filing status, dependent information, age, income and other eligibility requirements.

Indiana County Income Tax Rates

Every Indiana county imposes a local income tax. The county tax is calculated separately from the 2.95% state income tax.

Effective January 1, 2026, county rates range from 0.50% in Porter County to 3.00% in Randolph County. Examples of major county rates include:

County rates can be changed in January or October. Taxpayers and employers should therefore use the latest Departmental Notice Number 1 or the applicable annual Indiana income tax booklet.

Which Indiana County Tax Rate Applies?

For an Indiana resident, county income tax is generally based on the county of residence on January 1 of the tax year.

For example, a taxpayer who lives in Marion County on January 1 generally uses the Marion County rate for the year, even if they move to Hamilton County in February.

A person who lives outside Indiana but has a principal place of employment or business in an Indiana county on January 1 may be subject to that workplace county’s applicable tax.

County tax is reported through:

1. Schedule CT-40 for full-year Indiana residents
2. Schedule CT-40PNR for part-year residents and nonresidents

Does Indianapolis Have a City Income Tax?

Indianapolis does not impose a separate traditional city income tax. The local tax commonly associated with Indianapolis is the Marion County local income tax.

A Marion County resident is generally subject to:

1. 2.95% Indiana state income tax
2. 2.02% Marion County income tax
3. A combined marginal rate of approximately 4.97%

The combined rate applies after Indiana income calculations and may not equal the taxpayer’s effective rate on gross salary.

Who Must File an Indiana Tax Return?

A taxpayer generally must file an Indiana return when taxable income exceeds $2,000. Part-year residents and nonresidents can also have a filing obligation when they receive Indiana-source income.

A return may also be necessary or beneficial when:

1. Indiana state or county tax was withheld
2. The taxpayer wants to claim a refund
3. The taxpayer qualifies for a refundable credit
4. The taxpayer received Indiana-source business income
5. A part-year resident received income while living in Indiana
6. A nonresident received rental, business or gambling income from Indiana
7. Estimated payments were made

The correct filing requirement can depend on gross income, Indiana adjusted gross income, exemptions, residency and income source.

Which Indiana Tax Form Should You Use?

Full-year residents generally use Form IT-40. Part-year residents and most nonresidents use Form IT-40PNR. Certain residents of reciprocal states can use Form IT-40RNR.

Form IT-40

Form IT-40 is generally used when the taxpayer and spouse, when filing jointly, were full-year Indiana residents.

The return commonly includes:

1. Schedule 1 for add-backs
2. Schedule 2 for deductions
3. Schedule 3 for exemptions
4. Schedule 5 for credits and withholding
5. Schedule 6 for offset credits
6. Schedule CT-40 for county tax
7. Schedule IN-W for withholding statements

Form IT-40PNR

Form IT-40PNR is used by:

1. Part-year Indiana residents
2. Full-year nonresidents with Indiana-source income
3. Joint filers when one spouse was not a full-year Indiana resident
4. Reciprocal-state residents with non-wage Indiana income

Schedule CT-40PNR is used to calculate applicable county income tax.

Form IT-40RNR

Form IT-40RNR is available to full-year residents of:

1. Kentucky
2. Michigan
3. Ohio
4. Pennsylvania
5. Wisconsin

The taxpayer’s only Indiana income must generally consist of wages, salaries, tips, commissions or other qualifying employee compensation. A taxpayer with Indiana rental, business, gambling or other non-wage income generally uses Form IT-40PNR instead.

When Is the Indiana Tax Return Due?

Indiana individual income tax returns are normally due April 15 following the end of the tax year. Income earned during 2026 will generally be reported on a return due April 15, 2027.

A valid federal extension generally extends the Indiana filing deadline. Taxpayers can also request an Indiana extension using Form IT-9.

An extension gives additional time to file but does not provide additional time to pay. Tax due should generally be paid by April 15 to reduce penalties and interest.

Indiana Residency Rules

Indiana residents generally report taxable income from all sources, including income earned outside the state. Nonresidents generally report only Indiana-source income.

A person’s residency is normally determined by domicile, meaning the place they consider their permanent legal home.

Indiana may consider factors such as:

1. Location of the primary home
2. Driver’s license
3. Voter registration
4. Vehicle registration
5. Family location
6. Employment or business connections
7. Mailing address
8. Financial accounts
9. Property ownership
10. Intent to return or remain

A person moving out of Indiana should establish a new domicile and retain evidence showing the date and permanence of the move.

Part-Year Residents

A part-year resident is someone who moves into or out of Indiana and changes legal residence during the year.

Part-year residents generally report:

1. Income received while they were Indiana residents
2. Indiana-source income received during the nonresident period

Part-year residents normally use Form IT-40PNR.

Indiana Income Tax for Nonresidents

Nonresidents generally owe Indiana tax on income connected with Indiana sources.

Indiana-source income can include:

1. Wages for services performed in Indiana
2. Business income attributable to Indiana
3. Rental income from Indiana property
4. Gains from Indiana real or tangible property
5. Partnership or S corporation income allocated to Indiana
6. Indiana gambling winnings
7. Certain deferred compensation linked to Indiana employment

Reciprocity may protect qualifying employee wages received by residents of Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin. It does not broadly protect business, rental or investment income.

Indiana Income Tax Reciprocity

Indiana has reciprocal wage-tax agreements with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin.

Residents of these states generally pay income tax to their home state rather than Indiana on qualifying:

1. Wages
2. Salaries
3. Tips
4. Commissions
5. Employee compensation

Reciprocity does not generally apply to:

1. Independent contractor income
2. Business income
3. Partnership distributions
4. Rental income
5. Gambling winnings
6. Gains from Indiana real estate

A reciprocal-state employee should complete the appropriate withholding documentation so that Indiana state tax is not incorrectly deducted. County tax obligations may still need to be reviewed separately.

Illinois is not one of Indiana’s reciprocal states. An Illinois resident working in Indiana may therefore have an Indiana filing obligation and may need to claim a credit on the Illinois return.

Indiana Remote-Worker Tax Rules

A person working remotely from Indiana generally earns income subject to Indiana tax because the services are physically performed in Indiana. Indiana residents are also generally taxed on wages earned for out-of-state employers.

A nonresident working entirely outside Indiana for an Indiana company does not automatically have Indiana-source wages solely because the employer is located in Indiana.

Hybrid employees generally allocate wages based on services physically performed inside and outside Indiana.

Special rules can apply to:

1. Bonuses
2. Commissions
3. Restricted stock
4. Stock options
5. Deferred compensation
6. Severance pay
7. Pass-through business income

Indiana’s 30-Day Nonresident Employee Rule

Beginning with tax year 2024, qualifying nonresident employees who perform employment duties in Indiana for 30 days or fewer during the calendar year can deduct those wages from Indiana adjusted gross income.

Employers can also receive withholding relief when statutory requirements and recordkeeping rules are satisfied. When an employee unexpectedly exceeds 30 Indiana workdays, withholding obligations may apply retroactively.

This rule does not necessarily apply to every worker, industry or type of compensation.

Indiana Paycheck Withholding

Indiana employers generally withhold both state and applicable county income tax from employee wages.

Employees use Form WH-4 to report:

1. State withholding exemptions
2. Dependents
3. Additional withholding
4. County of residence
5. Principal county of employment
6. Withholding exemption eligibility

For 2026, the state withholding rate is based on the 2.95% individual income tax rate. Employers also use the employee’s January 1 county information to determine local withholding.

Bonuses, commissions and other supplemental payments are taxable compensation. The amount withheld can differ from exactly 2.95% of gross pay because payroll calculations account for exemptions, payment frequency and county tax.

Indiana Capital Gains Tax

Indiana does not provide a separate preferential individual income tax rate for long-term capital gains. Gains included in federal adjusted gross income generally enter the Indiana tax calculation and are subject to the 2.95% state rate.

This can include gains from:

1. Stocks
2. Cryptocurrency
3. Mutual funds
4. Business interests
5. Investment property
6. Indiana real estate
7. Other capital assets

Federal exclusions, such as the qualifying primary-home sale exclusion, can reduce the amount entering federal adjusted gross income and therefore the Indiana calculation.

For nonresidents, ordinary stock or investment gains are generally taxed by the taxpayer’s state of residence. Indiana can tax gains connected with an Indiana business or Indiana real or tangible property.

County income tax may also apply when the gain is included in Indiana adjusted gross income and the taxpayer is subject to an Indiana county tax.

Does Indiana Tax Retirement Income?

Indiana does not tax Social Security benefits or qualifying Railroad Retirement Board benefits included in federal adjusted gross income. The taxpayer claims an Indiana deduction to remove these amounts.

Traditional IRA withdrawals, 401(k) distributions, private pensions and most other retirement income can remain taxable unless a specific Indiana deduction applies.

Military Retirement Income

Indiana allows a deduction equal to the full amount of qualifying military retirement income and survivor benefits for 2022 and later tax years.

This generally removes qualifying military retirement benefits from both state and applicable county taxable income.

Civil Service and Disability Retirement

Certain taxpayers may qualify for deductions related to federal civil service annuities or disability retirement benefits. Eligibility can depend on age, employment history, benefit type and the date the taxpayer began receiving payments.

Indiana Deductions and Credits

Indiana offers deductions, exemptions and credits that can reduce taxable income or the final amount owed.

Renter’s Deduction

A taxpayer who paid rent on a principal residence in Indiana can generally claim a deduction of up to $3,000.

Married taxpayers filing separately are generally limited to $1,500 each. The rented property must normally be subject to Indiana property tax.

Homeowner Property Tax Deduction

Indiana homeowners can generally deduct up to $2,500 of property tax paid on their principal residence.

This deduction is separate from the federal property tax deduction and is claimed directly on the Indiana income tax return.

Indiana Earned Income Credit

Indiana’s Earned Income Credit generally equals 10% of the taxpayer’s qualifying federal Earned Income Tax Credit.

The credit can be refundable, meaning an eligible taxpayer may receive a refund even when the credit exceeds the income tax owed.

Indiana 529 Education Savings Credit

Indiana taxpayers who contribute to an eligible CollegeChoice 529 account may qualify for a state tax credit.

Eligibility and the maximum credit depend on the contribution, taxpayer status and the rules applying to the relevant tax year.

Credit for Taxes Paid to Another State

An Indiana resident who pays income tax to another state on the same income may qualify for a credit.

The credit is generally limited to the smaller of:

1. The income tax paid to the other state
2. The Indiana tax attributable to the same income

Different rules can apply to county income taxes and reciprocal states.

Indiana Estimated Tax Payments

Individuals generally need to make Indiana estimated payments when they expect to owe at least $1,000 in combined state and county tax after subtracting withholding and credits.

Estimated payments commonly apply to taxpayers receiving:

1. Self-employment income
2. Independent contractor income
3. Rental income
4. Investment income
5. Capital gains
6. Retirement income without withholding
7. Pass-through business income

Estimated payments are made using Form ES-40 or through INTIME.

The standard installment dates are generally:

1. April 15
2. June 15
3. September 15
4. January 15 of the following year

Due dates can shift when they fall on a weekend or legal holiday.

Indiana Income Tax for Self-Employed Workers

Self-employed Indiana residents generally pay the 2.95% state income tax and applicable county tax on taxable business profits. Federal self-employment tax can also apply separately.

Sole proprietors and single-member LLC owners generally report business income through their individual returns.

Partnership and S corporation owners may receive Indiana-source pass-through income. Nonresident owners can face withholding, composite return or pass-through entity tax requirements.

Indiana also allows eligible pass-through entities to elect entity-level taxation. Owners should review how the election affects state tax credits, county tax and nonresident filing responsibilities.

Final Summary

Indiana has a flat individual income tax rate of 2.95% for the 2026 tax year. The rate is scheduled to decrease to 2.90% in 2027.

Every Indiana county also imposes a local income tax. Rates effective January 1, 2026 range from 0.50% in Porter County to 3.00% in Randolph County. A resident’s county tax is generally determined by the county where they lived on January 1.

Full-year residents generally use Form IT-40. Part-year residents and most nonresidents use Form IT-40PNR. Qualifying residents of Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin may use Form IT-40RNR when their only Indiana income consists of eligible employee compensation.

Indiana does not tax Social Security or qualifying Railroad Retirement benefits. Military retirement and survivor benefits are fully deductible under current rules. Other pension, IRA and 401(k) income can remain taxable.

Taxpayers should pay particular attention to county tax rates, January 1 county status, reciprocal-state employment, remote-work days, the 30-day nonresident rule, estimated payments and retirement deductions.

This article provides general information and is not personalized tax or legal advice.