Indiana's state income tax is a flat 3.15% on most income

Indiana taxes income at a single rate of 3.15%, which applies to wages, salaries, interest, dividends, and most other forms of income. This is called a flat tax because everyone pays the same percentage, regardless of how much they earn. The rate has been 3.15% since 2022 and applies to both residents and non-residents who earn income in the state.

The tax is withheld from your paycheck by your employer, similar to federal income tax. If you're self-employed or have income that isn't subject to withholding, you may need to make estimated tax payments to Indiana throughout the year. Indiana also allows you to claim a standard deduction, which reduces the amount of income that gets taxed.

Key Takeaways

  • Indiana's flat income tax rate is 3.15%, applied to all taxable income regardless of how much you earn.
  • You can claim a standard deduction that lowers your taxable income; the amount depends on your filing status and age.
  • If you work in Indiana but live in another state, you may owe Indiana tax on wages earned in the state, though your home state may offer a credit.
  • Indiana does not tax retirement income from Social Security, pensions, or military retirement pay, though some other retirement income may be taxable.
  • You file Indiana taxes using Form IT-40 or IT-40PNR, which you submit to the Indiana Department of Revenue by April 15 each year.

How the standard deduction reduces what you owe

The standard deduction is an amount you subtract from your total income before the 3.15% tax is applied. For the 2024 tax year, the standard deduction in Indiana is $6,950 for single filers and $13,900 for married couples filing jointly. If you are 65 or older, you get an additional deduction of $1,000.

Here's a straightforward example: if you earned $40,000 in wages and filed as single, you would subtract the $6,950 standard deduction, leaving $33,050 in taxable income. You would then pay 3.15% on that $33,050, which equals about $1,041 in state income tax. Without the standard deduction, you would owe 3.15% on the full $40,000.

You can choose to itemize deductions instead of taking the standard deduction if your itemized deductions are larger, though most Indiana residents benefit from the standard deduction.

What income is taxed and what is not

Indiana taxes most types of income: wages, salaries, bonuses, tips, interest from savings accounts and bonds, and dividends from stocks. Self-employment income is also taxable. However, Indiana does not tax Social Security benefits, federal or military pensions, or certain retirement distributions.

If you receive income from a retirement account like a traditional IRA or 401(k), the distributions are taxable in Indiana. However, if you are over 59½ and receive distributions from a may have access to retirement plan, you may be able to exclude up to $15,000 of that income from Indiana taxation, though this exclusion has limits based on your total income.

Capital gains—the profit you make when you sell an investment—are taxed as ordinary income at the 3.15% rate. Losses can sometimes be deducted to offset gains.

If you work in Indiana but live elsewhere

If you live in another state but work in Indiana, you owe Indiana income tax on the wages you earn in the state. You will file an Indiana return (Form IT-40NR for non-residents) reporting only the income earned in Indiana. Your home state may also tax that same income, but most states offer a credit for taxes paid to other states to prevent double taxation.

The credit your home state offers varies by state. Some states offer a dollar-for-dollar credit, while others offer a percentage-based credit. You should check with your home state's tax authority to understand how the credit works and whether you need to file in both states.

If you are a resident of Indiana but work in another state, you generally do not owe Indiana tax on that out-of-state income. However, you may still need to file an Indiana return if you have other Indiana-source income, such as rental income from property in the state.

How to file your Indiana state income tax return

Most Indiana residents file using Form IT-40, the standard individual income tax return. Non-residents who earned income in Indiana use Form IT-40NR. Both forms are filed with the Indiana Department of Revenue by April 15 each year, the same important date as federal taxes.

You can file your Indiana return on paper by mailing it to the address listed on the form, or you can file electronically through the Indiana Department of Revenue's website or through tax software. Electronic filing is faster and reduces the chance of errors. If you file on paper, allow extra time for processing.

If you cannot file by April 15, you can request an extension, which gives you until October 15 to file. An extension delays the filing important date but does not delay the tax payment important date—you still owe any taxes due by April 15, or you will face penalties and interest.

Deductions and credits that lower your Indiana tax bill

Beyond the standard deduction, Indiana offers several credits that reduce your tax bill. The child and dependent care credit helps offset costs of childcare or adult care. The earned income credit is available to lower-income workers. Indiana also offers a property tax deduction for homeowners and renters, which reduces your taxable income based on property taxes or rent paid.

If you made charitable contributions, paid student loan interest, or had significant medical expenses, you may be able to itemize deductions instead of taking the standard deduction. To itemize, your total deductions must exceed the standard deduction amount for your filing status.

You should review the current list of credits on the Indiana Department of Revenue website, as credits and their limits change year to year. Some credits are refundable, meaning you can receive money back even if you owe no tax, while others only reduce the tax you owe.

When you might owe estimated taxes

If you are self-employed, a freelancer, or have income that is not subject to withholding, you may need to make quarterly estimated tax payments to Indiana. Estimated taxes are due on April 15, June 15, September 15, and January 15 of the following year. You calculate your expected annual income and pay one-quarter of the estimated tax each quarter.

If you do not pay estimated taxes and you owe more than $500 when you file your return, you may face a penalty for underpayment. The penalty is calculated based on how much you underpaid and how late the payment was. To avoid the penalty, you can either pay estimated taxes quarterly or have enough tax withheld from other income sources.

You can calculate your estimated tax using the worksheet in the Indiana Department of Revenue's instructions, or you can use tax software that handles the calculation for you.

Frequently Asked Questions

Does Indiana tax retirement income?

Indiana does not tax Social Security, federal pensions, or military retirement pay. However, distributions from IRAs, 401(k)s, and other retirement accounts are taxable. If you are over 59½, you may be able to exclude up to $15,000 of retirement income, but this exclusion has income limits.

What if I moved to Indiana partway through the year?

You file as a resident for the months you lived in Indiana and as a non-resident for the months you lived elsewhere. You report only the income earned while you were an Indiana resident. Your employer's withholding should reflect your residency status, but you may need to adjust it if you moved mid-year.

Can I deduct federal income taxes from my Indiana return?

No, Indiana does not allow you to deduct federal income taxes paid. You can only deduct state and local income taxes, property taxes, and sales taxes up to a combined limit of $10,000 if you itemize deductions.

What happens if I file late?

If you file after April 15 without requesting an extension, you will owe a penalty of 5% per month (up to 25%) of the unpaid tax, plus interest. If you owe money, the interest accrues from April 15 forward. Filing an extension by April 15 waives the late-filing penalty but not the interest on unpaid taxes.

Do I need to file an Indiana return if I had no income?

Generally, no. However, if you had taxes withheld from your paychecks or made estimated tax payments, you should file to get a refund. Also, if you are claiming certain credits, you may need to file even with no income.