Indiana collects state income tax from wages, retirement income, and investment earnings

Yes, Indiana has a state income tax. The current rate is a flat 3.15 percent on most types of income — wages, pensions, interest, dividends, and capital gains all fall under this single rate. You pay it on top of federal income tax, not instead of it. Indiana is one of 41 states that collect income tax; only nine states have no income tax at all.

The 3.15 percent rate has been in place since 2022. Before that, Indiana's rate was 3.23 percent. The state legislature can change this rate, so it is worth checking the Indiana Department of Revenue website each year when you file, though changes are not frequent.

Key Takeaways

  • Indiana's state income tax rate is a flat 3.15 percent on wages, retirement income, investment earnings, and most other income sources.
  • You file Indiana state income tax separately from federal tax, usually at the same time, using Form IT-40 or IT-40PNR.
  • Your employer withholds Indiana income tax from your paycheck based on a W-4 form you complete, similar to federal withholding.
  • Indiana offers a standard deduction (currently $6,950 for single filers and $13,900 for married couples filing jointly as of 2024) that reduces your taxable income.
  • Retirees may exclude some or all of their pension and Social Security income from Indiana taxation under specific conditions.

How Indiana income tax withholding works on your paycheck

When you start a job in Indiana, your employer asks you to fill out a withholding form — similar to the federal W-4, but for state purposes. This tells your employer how much Indiana income tax to take from each paycheck. The amount depends on your filing status, the number of dependents you claim, and any extra withholding you request.

Your employer sends the withheld money to the Indiana Department of Revenue on your behalf. At the end of the year, you file your state return to reconcile what was withheld against what you actually owe. If too much was withheld, you get a refund; if too little, you owe the difference.

If you are self-employed or have income with no withholding, you may need to make estimated quarterly tax payments to Indiana. The Department of Revenue website has a schedule and payment portal for this.

Filing your Indiana state income tax return

Most Indiana residents file using Form IT-40 (the standard individual income tax return) or Form IT-40PNR (for part-year residents or non-residents). You file this with the Indiana Department of Revenue, usually at the same time you file your federal return — the important date is April 15 unless you request an extension.

Indiana accepts electronic filing through approved tax software or through a tax professional. The state also offers free filing through the Volunteer Income Tax information (VITA) program if your household income is below a certain threshold; you can find a VITA site near you through the IRS website.

You will need your federal tax return information to complete your Indiana return, since Indiana income is calculated based on your federal adjusted gross income. The state then applies its standard deduction and any credits you may have access to for.

Standard deduction and tax credits in Indiana

Indiana offers a standard deduction that reduces the income you pay tax on. For the 2024 tax year, the standard deduction is $6,950 for single filers and $13,900 for married couples filing jointly. These amounts change slightly each year. If your total income is below the standard deduction, you may not owe Indiana income tax at all.

Indiana also offers several tax credits that can lower your tax bill directly. The Earned Income Tax Credit (EITC) is available to low- and moderate-income working people and families. Indiana's version is a percentage of the federal credit, so the amount varies based on your federal EITC. Other credits include the Child and Dependent Care Credit and the Education Expense Credit for certain may have access to expenses.

You claim these credits on your state return. The Indiana Department of Revenue website lists all current credits and the forms needed to claim them.

Pension and Social Security income — what is taxed and what is not

Indiana has special rules for retirement income. Social Security benefits are not taxed by Indiana, regardless of your total income. This is one of the more retiree-friendly aspects of Indiana's tax system.

Pension income and distributions from retirement accounts (like 401(k)s and IRAs) are generally taxable at the 3.15 percent rate. However, Indiana allows a deduction for certain pension and retirement income under specific conditions. If you are age 59½ or older, you may be able to exclude some or all of your pension income from Indiana taxation, depending on the source of the pension and your total income. Military pensions have their own rules and may be fully excluded.

The rules for pension exclusions are detailed and depend on your age, the type of pension, and your filing status. The Indiana Department of Revenue publishes a guide on pension taxation, and a tax professional can help you determine what applies to your situation.

What happens if you move to or from Indiana

If you move to Indiana during the year, you are a part-year resident and file Form IT-40PNR. You only pay Indiana income tax on income earned while you lived in the state. You will need to report when you moved and provide documentation of your residency change.

If you move out of Indiana, you stop owing Indiana income tax on income earned after you leave, but you still file a return for the portion of the year you lived there. Some states have reciprocal agreements with Indiana, meaning you may not owe tax to both states on the same income; the Indiana Department of Revenue can clarify this based on where you moved.

If you work in Indiana but live in another state, you typically owe Indiana income tax on wages earned in the state. Some neighboring states have agreements that may affect this; check with both state revenue departments if this applies to you.

Where to find Indiana tax forms and current rates

The Indiana Department of Revenue website (in.gov/dor) is the official source for all state tax forms, instructions, and current rates. You can read forms directly, find answers to common questions, and access the online payment system.

If you have questions about your specific situation, you can contact the Department of Revenue by phone or through their website. They also offer a searchable tax guide and frequently asked questions section. For complex situations — such as business income, rental property, or significant investment gains — a tax professional familiar with Indiana law is often the best resource.

Frequently Asked Questions

Do I have to file an Indiana income tax return if I live there?

You must file if your income exceeds the standard deduction for your filing status. If your income is below the standard deduction, you do not have to file, though you may want to if you had taxes withheld and are due a refund. Part-year residents and non-residents have different thresholds; check the Department of Revenue website for your situation.

Is Indiana income tax deductible on my federal return?

Yes, Indiana state income tax is deductible on your federal return if you itemize deductions instead of taking the standard deduction. You can deduct either state income tax or state sales tax, but not both. Many people find the federal standard deduction is larger, so they do not itemize.

What if my employer did not withhold Indiana income tax?

You will owe the tax when you file your return. If a large amount is owed and you did not expect it, you can adjust your withholding going forward or make estimated quarterly payments. The Department of Revenue can also set up a payment plan if you cannot pay in full by the important date.

Do I owe Indiana income tax on unemployment benefits?

Yes, unemployment benefits are taxable income in Indiana. Your state unemployment office will ask if you want federal tax withheld, but Indiana state tax is not automatically withheld from unemployment. You may need to make estimated payments or adjust your withholding from other income to cover the tax owed.

Can I get an extension to file my Indiana return?

Yes. If you request a federal extension, your Indiana return is automatically extended to the same date (usually October 15). You can also request an extension directly from Indiana. An extension gives you more time to file, but taxes are still due by April 15; if you owe and do not pay by then, you will owe interest and penalties.