Disclaimer: Calculations are estimates based on tax rates as of Jan. 2023 and data from the Tax Foundation. These rates are subject to change. Check the IRS website for the latest information about income taxes and your state tax website for state-specific information. Our calculator doesn’t consider both 401k and IRA deductions due to the tax law limitations. Please note, the amount of your IRA deductions may vary. You should speak with a tax professional to determine your tax situation.
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What You Need To Know About Indiana State Taxes
The state of Indiana requires you to pay taxes if you’re a resident or nonresident who receives income from an Indiana source. The state income tax rate is 3.23%, and the sales tax rate is 7%.
Indiana offers tax deductions and credits to reduce your tax liability, including deductions for renters and homeowners, an earned income tax credit (EITC) and a credit for senior citizens.
Indiana Income Tax Rates
Indiana has a flat tax rate of 3.23% for 2021, meaning everyone pays the same state income tax regardless of their income.
Income Tax Deductions for Indiana
Renter’s Deduction
Taxpayers can deduct up to $3,000 of rent they paid for their residence in Indiana. The deduction is valid for your permanent residence only, and summer, vacation and student housing aren’t eligible. In addition, if your property is owned by a government, nonprofit, or cooperative, you can’t deduct your rent.
Homeowner’s Residential Property Tax Deduction
Taxpayers can deduct up to $2,500 of Indiana property taxes paid on their principal residence.
Private School/Homeschool Deduction
If your dependent child is enrolled in private school or is homeschooled, you can deduct $1,000 per child on your Indiana income tax return.
Unemployment Compensation Deduction
If you received unemployment benefits, the state of Indiana may tax only a portion of your unemployment compensation, which would allow you to pay less in tax than you did to the federal government. Include your 1099G form to be able to claim this deduction. Page 19 of the IT-40 instruction booklet has a worksheet to help you determine your unemployment compensation deduction.
Disability Retirement Deduction
Taxpayers who retire on disability before Dec. 31 of the tax year may be able to deduct a portion of their disability payments. You must be permanently and totally disabled when you retire, and the maximum deduction is $5,200. Schedule IT-2440 includes a worksheet to help you determine your deduction amount.
Indiana State Income Tax Credits
Indiana’s Earned Income Credit (IN-EIC)
Indiana taxpayers who claimed an earned income tax credit on their federal taxes can also claim the Indiana EIC.
The income limits for claiming the credit are:
- Less than $15,900 if no children lived with you (you must be older than 24 and younger than 65)
- Less than $42,100 if one child lived with you
- Less than $47,900 if two or more children lived with you
Generally, your dependents must be under 19 (under 24 if a student).
The maximum Indiana EIC is $538. Use the worksheets starting on page 34 of the IT-40 instruction booklet to calculate your credit.
Indiana Adoption Credit
If you adopted a child and claimed an adoption credit on your federal tax return, you can claim a credit on your Indiana tax return as well. You may claim up to 10% of the federal credit allowed per child or $1,000 per child (whichever is less). Use worksheet B in the IT-40 instruction booklet to calculate your credit.
Indiana’s CollegeChoice 529 Education Savings Plan Credit
Taxpayers who made contributions to a CollegeChoice 529 plan can claim a credit for the amount of their contribution.
Public School Educator Expense Credit
Taxpayers who work in Indiana public K-12 schools can claim a credit for expenses for classroom supplies. Teachers, librarians, counselors, principals and superintendents can claim the credit, which is a maximum of $100. The amount increases up to $200 if married filing joint and both spouses qualify, but only up to $100 for each spouse.
Unified Tax Credit for the Elderly
Taxpayers age 65 or older by the end of the tax year can claim a credit if their income is less than $10,000. The amount of the credit ranges from $40 to $140 and can be calculated using the worksheet on the second page of form SC-40.
Do I Have to Pay Income Tax in Indiana?
You’re required to file an Indiana tax return if you’re a resident or nonresident who receives income from an Indiana source.
Residency Status
You’re considered a resident if you live in Indiana either full-time or for part of the year.
Residents of Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin who earn income in Indiana don’t have to pay Indiana state income tax—they only pay taxes to their own state.
Related: Indiana Income Tax Calculator
Sales Tax and Sales Tax Rates
Indiana charges a sales tax of 7%.
Property Taxes and Property Tax Rates
Property tax rates are determined at the local level.
Property Tax Exemptions
Indiana provides property tax exemptions for certain organizations using their property for educational, literary, scientific, religious, or charitable purposes.
Capital Gains Taxes
Indiana taxes capital gains at the same rate as other income, 3.23%.
Inheritance and Estate Tax
Indiana doesn’t have an inheritance or estate tax.
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