Taxes in Indiana: State Tax Guide 2026
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Taxes in Indiana: State Tax Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Indiana offers one of the simplest and most affordable tax structures in the Midwest. Its flat state income tax rate of ~3.05% is among the lowest of states that levy an income tax, though mandatory county income taxes add 0.50%–2.90% on top. Sales tax is a flat 7.00% statewide, and property taxes are constitutionally capped. For residents and businesses, Indiana’s tax environment is designed to be predictable and competitive.
Indiana Income Tax Rates (2026)
Indiana uses a flat income tax with a planned rate reduction schedule:
| Tax Rate | Taxable Income Range |
|---|---|
| ~3.05% | All adjusted gross income |
Indiana has been reducing its flat rate gradually. The rate was 3.23% through 2022, dropped to 3.15% in 2023, 3.05% in 2024–2025, and is scheduled to continue declining to 2.90% by 2027.
County income tax (required): All 92 Indiana counties impose a local income tax. Rates range from 0.50% (several counties) to 2.90% (Pulaski County). Marion County (Indianapolis) charges ~2.02%. The county tax is based on the county of residence as of January 1.
Combined effective rate example: A resident of Marion County (Indianapolis) pays ~3.05% state + ~2.02% county = ~5.07% combined.
Sales Tax
| Component | Rate |
|---|---|
| State rate | 7.00% |
| Local add-on | None |
| Combined rate statewide | 7.00% |
Indiana does not allow local sales tax add-ons. The 7.00% rate is uniform.
Exempt from sales tax: Most groceries (unprepared food for home consumption), prescription medications, and medical equipment. Indiana also exempts most manufacturing equipment and raw materials used in production.
Property Tax
| Metric | Amount |
|---|---|
| Average effective rate | ~0.81% |
| National average | 0.99% |
Indiana’s constitution caps property taxes as a percentage of assessed value:
- Homestead (owner-occupied): 1% of gross assessed value
- Other residential and agricultural: 2% of gross assessed value
- Commercial and industrial: 3% of gross assessed value
These caps are hard limits. If the calculated tax exceeds the cap, the bill is reduced through circuit breaker credits.
Homestead deduction: ~$48,000 or 60% of assessed value (whichever is less) is deducted from the gross assessed value for owner-occupied primary residences.
Supplemental homestead deduction: An additional 35% deduction on the assessed value remaining between ~$600,000 and the homestead-adjusted amount, plus 25% on value above ~$600,000.
Other Taxes
- Estate and inheritance tax: Indiana repealed its inheritance tax in 2013. There is no state estate tax.
- Capital gains: Taxed as ordinary income at the flat ~3.05% state rate plus county tax.
- Fuel tax: ~$0.35 per gallon of gasoline (includes a surcharge indexed to fuel prices).
- Cigarette tax: ~$1.00 per pack.
- Alcohol tax: Excise tax of ~$2.68 per gallon of spirits.
- Gaming taxes: Indiana taxes casino revenue at rates ranging from ~15% to ~40% depending on revenue level.
- No local sales taxes: The 7.00% rate is the same everywhere in Indiana.
Tax Breaks and Credits
- No tax on Social Security: Indiana does not tax Social Security benefits.
- Military retirement and pension deduction: Up to ~$6,250 of military retirement pay can be deducted from state income. A separate deduction of up to ~$2,000 applies to other retirement income (e.g., private pensions, 401(k), IRA distributions) for taxpayers aged 62+.
- Renter’s deduction: Renters can deduct up to ~$3,000 in rent paid from adjusted gross income.
- Indiana EITC: ~10% of the federal Earned Income Tax Credit.
- Unified tax credit: ~$1,000 for each exemption claimed (taxpayer, spouse, dependents).
- 529 plan credit: A 20% tax credit on contributions to Indiana’s CollegeChoice 529 plan, up to a
$1,500 credit per year ($7,500 in contributions). - Property tax caps: The constitutional circuit breaker caps ensure property taxes never exceed 1%/2%/3% of assessed value by property class.
- Teacher summer employment deduction: Up to ~$600 for licensed teachers who work summer school.
Key Takeaways
- Indiana’s flat ~3.05% state income tax is among the lowest in the nation, and it is scheduled to continue dropping
- County income taxes of 0.50%–2.90% are mandatory and vary significantly — your county of residence matters
- Constitutional property tax caps (1% for homesteads) provide hard protection against runaway assessments
- Sales tax is a uniform 7.00% with no local add-ons, keeping compliance simple
- The 529 plan tax credit (20% of contributions, up to ~$1,500) is one of the best in the nation
Next Steps
- Compare Indiana to other states at State Income Tax Comparison: All 50 States Ranked
- Understand your federal obligation with the Federal Income Tax Guide 2026
- Make sure you claim everything you can — Tax Deductions You’re Probably Missing
- Ready to file? See How to File Your Taxes Step by Step
Tax information is for educational purposes only. Consult a licensed tax professional.