Indiana collects state income tax from most workers, but the rate is flat and lower than many states
Indiana has a state income tax that applies to wages, self-employment income, interest, dividends, and other earnings. The tax rate is 3.15 percent — the same for everyone, regardless of how much you earn. This is called a flat tax. You pay it on top of federal income tax, not instead of it.
The state withholds income tax from paychecks automatically if you work for an employer. If you're self-employed or have income without withholding, you may need to make quarterly estimated tax payments to the Indiana Department of Revenue. Indiana does not have a local income tax in addition to the state tax.
Key Takeaways
- Indiana's state income tax rate is a flat 3.15 percent on all taxable income, applied equally to all residents and nonresidents who earn money in the state.
- Your employer withholds Indiana income tax from your paycheck automatically; you see it as a separate line item from federal withholding.
- Retirees who receive only Social Security, pensions from Indiana public employees, or military retirement may owe little or no state income tax depending on their total income.
- Self-employed people and those with investment income should file an Indiana tax return even if no tax was withheld during the year.
- Indiana allows a standard deduction and a dependent exemption that reduce the income subject to tax, similar to the federal system.
Who has to file an Indiana income tax return
You must file an Indiana return if you lived in the state on December 31 of the tax year and your gross income exceeded the filing threshold. For 2024 tax year returns, the threshold depends on your filing status and age. A single person under 65 with gross income of $1,000 or more must file; a married couple filing jointly with combined income of $2,000 or more must file. These thresholds are lower than the federal requirement, so you may file an Indiana return even if you don't file federally.
Nonresidents who earned income in Indiana during the year must also file, even if they lived elsewhere. This includes people who worked in Indiana part of the year or had rental income from Indiana property. Indiana taxes you on money earned within the state, regardless of where you live.
What income is taxed and what is not
Indiana taxes wages, salaries, tips, self-employment income, interest, dividends, capital gains, rental income, and most other forms of earnings at the 3.15 percent rate. However, certain types of income are excluded or treated differently. Social Security benefits are not taxed by Indiana. Military retirement pay is not taxed. Pension income from the Indiana Public Employees' Retirement Fund (PERF) and the Teachers' Retirement Fund (TRF) is not taxed.
Other pension and retirement income may be partially or fully excluded depending on your age and total income. If you are 59½ or older and receive a pension from a private employer or out-of-state government employer, you may exclude up to $15,000 of that income per year. The rules are complex and depend on when you started receiving the pension and your filing status, so many retirees benefit from working through a return with a tax professional or using Indiana's tax forms and worksheets.
How to file your Indiana income tax return
You can file on paper or electronically. The Indiana Department of Revenue accepts returns filed through commercial tax software, through a tax professional, or by mail using Form IT-40 (the individual income tax return). The deadline is the same as the federal deadline — usually April 15 of the year following the tax year, though it moves if April 15 falls on a weekend or holiday.
If you file electronically, you typically receive a refund faster than if you file by mail. Indiana also offers free tax preparation through the Volunteer Income Tax Assistance (VITA) program, which operates at libraries, community centers, and nonprofit organizations throughout the state. You can find a VITA site near you through the IRS website or by calling 211 Indiana.
Estimated tax payments for self-employed and other taxpayers
If you are self-employed, have significant investment income, or receive income without withholding, you may owe estimated tax payments to Indiana. These are quarterly payments made on January 15, April 15, June 15, and September 15. You calculate the amount based on your expected income for the year and your tax liability.
If you underpay estimated taxes, Indiana may charge a penalty and interest when you file your return. However, if you pay at least 90 percent of your current year tax or 100 percent of your prior year tax through withholding and estimated payments combined, you generally avoid the penalty. Many self-employed people find it easier to set aside 3.15 percent of their net self-employment income each month and pay it quarterly rather than trying to calculate the exact amount owed.
Deductions and exemptions that reduce your Indiana tax
Indiana allows a standard deduction that varies by filing status and age. For the 2024 tax year, the standard deduction is $700 for single filers under 65, $1,400 for married couples filing jointly, and higher amounts for people 65 and older. You also receive a personal exemption of $220 for yourself and $220 for each dependent, which further reduces your taxable income.
Unlike the federal system, Indiana does not allow you to itemize deductions. You take the standard deduction or nothing. Some taxpayers also claim a dependent exemption if they support a child or other relative, though the rules for who counts as a dependent are strict and match the federal definition. If you claim a dependent on your federal return, you can claim them on your Indiana return as well.
What happens if you move to or from Indiana
If you move into Indiana during the year, you owe Indiana income tax on all income earned after you became a resident. If you move out of Indiana, you owe tax only on income earned while you were a resident. You must report the date you moved on your return. Nonresidents who worked in Indiana part of the year file a part-year resident return and pay tax only on Indiana-source income.
If you moved out of state and received a W-2 from an Indiana employer, your employer may have withheld Indiana tax even though you were not a resident for the full year. When you file your return in your new state, you can claim a credit for Indiana taxes paid, which prevents you from paying tax twice on the same income. Indiana also allows a credit for taxes paid to other states if you worked in multiple states during the year.
Frequently Asked Questions
Does Indiana tax Social Security or military retirement?
No. Social Security benefits and military retirement pay are completely exempt from Indiana income tax. If Social Security is your only income, you will not owe Indiana tax. If you have other income in addition to Social Security, you calculate tax only on the non-Social Security portion.
What if I worked in Indiana but live in another state?
You must file an Indiana return and pay tax on the income you earned in Indiana. You also file a return in your home state. Most states allow a credit for taxes paid to other states, so you do not pay tax twice on the same money. Your home state's tax rate may be higher or lower than Indiana's 3.15 percent, which affects your overall tax burden.
Can I deduct charitable donations or mortgage interest on my Indiana return?
No. Indiana does not allow itemized deductions. You take only the standard deduction, which is a flat amount based on your filing status. Charitable donations, mortgage interest, and other deductions that reduce federal tax do not reduce Indiana tax.
What if I did not have enough tax withheld and owe money?
You can pay the amount owed when you file your return. If you cannot pay in full, the Indiana Department of Revenue offers payment plans. You can also adjust your withholding with your employer for future paychecks to avoid owing a large amount next year. Contact your payroll department and provide a new W-4 form.
Where do I send my Indiana tax return?
If you file by mail, send your return to the Indiana Department of Revenue at the address listed on Form IT-40. If you file electronically through tax software or a tax professional, the return is submitted directly to the state. Electronic filing is faster and reduces the chance of errors.