State & Local Taxes
Indiana State Income Tax: 2026 Rate and Local Taxes
The Indiana state income tax is a flat 2.95% for tax year 2026, applied to Indiana adjusted gross income regardless of filing status or income level. On top of that, all 92 counties charge their own local income tax, so most Hoosiers pay a combined rate between roughly 3.45% and 6.33%. The state rate is on a scheduled decline and is set to reach 2.9% in 2027.
Indiana is one of a handful of states that pairs a low flat state rate with a mandatory county tax on every resident. That structure means your actual tax bill depends heavily on the county you lived in, not just the statewide rate.
What is the Indiana state income tax rate in 2026?
Indiana levies a flat individual income tax of 2.95% on adjusted gross income for 2026. There are no brackets: a taxpayer earning $40,000 in taxable income and one earning $400,000 face the same 2.95% state rate. Indiana taxes both residents and, in many cases, nonresidents on Indiana-source income.
The rate applies to Indiana adjusted gross income, which starts from federal AGI and is then modified by Indiana-specific add-backs and deductions. Because it is a single flat rate, marginal and average state rates are identical before exemptions. Filing is done on Form IT-40 for full-year residents and Form IT-40PNR for part-year residents and nonresidents.
Indiana income tax rate schedule and scheduled reductions
Indiana’s flat rate has been stepping down for several years under legislation tied to state budget performance, and further cuts are scheduled through 2030. The reductions after 2027 are generally contingent on revenue growth triggers, so the later figures may change if state revenue targets are not met.
| Tax year | Flat state rate | Status |
|---|---|---|
| 2023 | 3.15% | Enacted |
| 2024 | 3.05% | Enacted |
| 2025 | 3.05% | Enacted |
| 2026 | 2.95% | Current |
| 2027 | 2.90% | Scheduled |
| 2028-2030 | as low as 2.55% | Conditional on revenue triggers |
The 2028 through 2030 rates depend on whether Indiana meets defined revenue-growth conditions in the prior year. Treat any rate beyond 2027 as a planning estimate rather than a fixed figure, and confirm the current rate at in.gov/dor before filing.
Indiana county income tax (local income tax / LIT)
Every one of Indiana’s 92 counties imposes a local income tax (LIT), historically called the county adjusted gross income tax. County rates for 2026 generally range from about 0.5% to just under 3.4%, and the tax is layered directly on top of the 2.95% state rate. Unlike most states, where local income tax is limited to a few cities, Indiana applies a county tax to essentially every resident.
Your county rate is set by the county where you resided as of January 1 of the tax year, not where you work. Employers withhold county tax based on the employee’s county of residence on that date. If you did not live in an Indiana county on January 1 but worked in one, the county-of-principal-employment rate may apply instead.
County tax is reported on the same Form IT-40, not on a separate return. A handful of counties adjust their rates each year, so a rate that applied in 2025 may differ in 2026.
Combined Indiana income tax by example county (2026)
The table below shows the combined state-plus-county rate for several representative counties. County rates change, so verify your specific county before relying on these figures.
| County (major city) | County LIT | State rate | Combined rate |
|---|---|---|---|
| Hamilton (Carmel, Fishers) | 1.10% | 2.95% | 4.05% |
| Allen (Fort Wayne) | 1.48% | 2.95% | 4.43% |
| Marion (Indianapolis) | 2.02% | 2.95% | 4.97% |
| Lowest-rate counties | ~0.50% | 2.95% | ~3.45% |
| Highest-rate counties | ~3.38% | 2.95% | ~6.33% |
Exemptions and deductions that reduce Indiana taxable income
Indiana does not use the federal standard deduction. Instead, it reduces taxable income through personal exemptions and a set of Indiana-specific deductions. The base personal exemption is $1,000 per exemption (yourself, a spouse, and each dependent), with an additional $1,500 exemption often available for each qualifying dependent child.
Additional exemptions may apply for taxpayers who are 65 or older or blind, and for certain low-income and first-year dependents. Indiana also offers deductions that can further lower AGI, including a renter’s deduction, a portion of unemployment compensation in some cases, and various add-back adjustments that can increase income. Whether a specific deduction applies depends on your circumstances, so review the current Form IT-40 instructions or consult a tax professional.
Because Indiana starts from federal AGI, changes to your federal return, such as adjusted gross income adjustments, generally flow through to the Indiana calculation before state modifications.
Residency and who owes Indiana income tax
Indiana taxes full-year residents on all income and taxes nonresidents on income sourced to Indiana, such as wages earned in the state. Full-year residents file Form IT-40, while part-year residents and nonresidents file Form IT-40PNR and allocate income between Indiana and other states.
Indiana maintains reciprocal agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. Under these agreements, residents of those states generally do not owe Indiana state income tax on wages earned in Indiana, and they can file Form IT-40RNR. Reciprocity typically covers the state income tax on wages only, so county tax and non-wage Indiana income may still apply depending on the situation.
For a broader comparison of how state rules differ from federal ones, see state vs federal income tax. If you are weighing a move, our overview of states with no income tax provides useful context, and neighboring Ohio state income tax rules differ in structure.
How Indiana income tax is filed and paid
Most Indiana taxpayers report both state and county tax on Form IT-40, due by the federal deadline (generally April 15). Employers withhold state and county tax through Form WH-4, and taxpayers with income not subject to withholding may owe quarterly estimated payments.
Indiana offers electronic filing through INTIME, the state’s online tax portal, and accepts most major payment methods. Underwithholding, common when county tax is not set up correctly, can trigger a balance due at filing. Checking your WH-4 county code against your county of residence on January 1 helps avoid surprises.
Indiana’s combined state and local burden is a meaningful component of the broader picture covered in our state and local tax burden report.
Frequently asked questions
What is Indiana’s state income tax rate for 2026?
Indiana has a flat state income tax rate of 2.95% for tax year 2026, applied to Indiana adjusted gross income regardless of filing status or income level. The rate is scheduled to fall to 2.9% in 2027, with further reductions to as low as 2.55% by 2030 if state revenue-growth triggers are met.
Do all Indiana counties charge a local income tax?
Yes. All 92 Indiana counties levy a local income tax (LIT) in 2026, with rates generally between about 0.5% and just under 3.4%. The county tax is added on top of the 2.95% state rate and is based on the county where you resided as of January 1 of the tax year, not where you work.
What is the combined Indiana income tax rate?
Combining the 2.95% flat state rate with county rates, most Indiana residents pay a total income tax rate between roughly 3.45% and 6.33% in 2026, depending on their county. For example, Marion County (Indianapolis) at 2.02% produces a combined rate near 4.97%. County rates can change annually, so verify yours before filing.
How does Indiana residency affect income tax?
Full-year Indiana residents are taxed on all income and file Form IT-40. Part-year residents and nonresidents file Form IT-40PNR and allocate Indiana-source income. Your county tax is determined by where you lived on January 1. Residents of Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin may be exempt from Indiana tax on wages under reciprocity.
Does Indiana have a standard deduction?
No. Indiana does not use a standard deduction. It instead applies personal exemptions, generally $1,000 per exemption plus an additional $1,500 for each qualifying dependent child, along with Indiana-specific deductions and add-backs. Available deductions and additional exemptions depend on age, income, and dependent status, so review the current Form IT-40 instructions.
How do I pay Indiana county income tax?
County income tax is not filed separately. It is reported on the same Form IT-40 as your state tax and is withheld by employers through Form WH-4 based on your county of residence on January 1. Taxpayers with income not subject to withholding may need to make quarterly estimated payments to cover both state and county tax.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.