Your Guide to Local and State Taxes in Indiana
Indiana’s tax system includes a flat state income tax, local county taxes, and a statewide sales tax. Learn how these taxes impact residents and businesses.
Indiana’s tax system combines state-level taxes with local county taxes, affecting what residents pay on their income, purchases, and property. If you live or work in Indiana, you’ll be paying federal income taxes and Indiana state and local taxes.
Whether you’re an employee receiving a paycheck or a business owner running a company, it’s important to understand how these taxes work together—keep reading to get the information you’re looking for.
Understanding Local and State Indiana Taxes
In this post, we’ll break down Indiana’s state income tax, county income taxes, sales taxes, and property taxes. We’ll also touch on how Indiana’s taxes compare to other states in the United States.
Indiana State Income Tax
Indiana has a flat state income tax.
For the 2024 tax year (returns filed in 2025), the state income tax is 3.05%. This flat rate applies to all taxpayers regardless of income or filing status. Most residents with modest earnings over $1,000 are required to file an Indiana return.
The rate was 3.15% in 2023 and will gradually drop to 2.9% by 2027 under current law.
Indiana doesn’t have a standard deduction but offers personal exemptions to reduce your taxable income. In contrast, the federal income tax system provides a large standard deduction in place of personal exemptions.
Each filer can claim a $1,000 exemption for themselves and an additional $1,000 for a spouse if filing jointly. If married filing separately, you only get the spouse exemption if your spouse had no income.
For a married couple filing jointly, that’s $2,000 in total exemptions. After exemptions, the remaining income gets taxed at a flat rate.
Keep in mind, you pay this state tax on top of your federal taxes. You still owe federal income tax to the IRS on your income, separate from Indiana’s tax. Indiana also has reciprocal agreements with several neighboring states.
There are also reciprocal agreement states to consider. If you’re an Indiana resident working in Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin, you pay income tax only to Indiana on those wages. Residents of those states who work in Indiana pay only their home state.
Local County Income Taxes in Indiana
Indiana counties collect local income taxes on top of the state tax. All 92 counties levy a local income tax, with rates ranging roughly from 0.5% up to 3%.
The average county rate is 1.6%, but each county sets its tax based on local budget needs. These local taxes are a significant source of tax revenues and help fund services like schools and public safety.
Indiana is one of only a few states in the United States where counties rely on local income taxes to finance a substantial share of local government.
As a resource from the Indiana Department of Revenue explains, you do not file a separate local return; county taxes are included on your state income tax returns:
“A copy of the state Federal Wage and Tax Statement, Form W-2, usually indicates the amount, if any, of LIT withheld. A separate line on the individual income tax return is provided to take credit for local taxes withheld.”
Indiana Sales Tax
Income taxes aren’t the only taxes Hoosiers pay; Indiana also has a 7% sales tax on most purchases. This sales tax is the same across the state—no local sales taxes are added.
Unlike some states that allow varied local sales taxes, Indiana’s 7% rate is uniform statewide. However, certain items are exempt from the 7% tax.
Groceries and prescription drugs are exempt, you won’t pay tax on those. However, prepared food (restaurant meals, takeout), candy, and soft drinks are taxed, as are clothing and most other goods.
For perspective, state sales tax rates in the United States range from 0% to over 7%, and many states add local sales taxes on top. Indiana’s flat 7% is among the higher state sales tax rates.
Still, because no local surtaxes are added, Indiana's overall sales tax burden is about average compared to other states. Big purchases like cars are also taxed at 7% (and an additional annual vehicle excise tax is charged when registering it).
Property Taxes in Indiana
Property taxes in Indiana are levied by local governments (counties, cities, towns), so rates differ depending on where you live. They provide significant tax revenues for local governments and fund local services.
However, state law caps how high property taxes can go. For owner-occupied homes (homesteads), the property tax cannot exceed 1% of the home’s assessed value per year.
The cap is 2% of the value for other residential property (like rental houses) and farmland and 3% for business and other property.
In practice, current rates in many areas are below these maximums. The statewide average effective property tax rate is around 0.7% of a home’s value, but higher-tax counties may be closer to the caps.
For instance, a $200,000 owner-occupied home would owe at most $2,000 in property tax annually (1% of its value). Indiana’s cap system ensures that while property tax rates vary across communities, they stay within a reasonable range for each property category.
Indiana also offers several property tax deductions for homeowners that help lower the taxable value of property for those who qualify. These include homestead and special breaks for seniors, veterans, etc.
Other Tax Considerations
- Indiana repealed its inheritance tax in 2013 and does not impose a state-level estate tax.
- Indiana also does not tax Social Security benefits—though they may be partially taxable under federal tax rules.
- Indiana’s corporate income tax rate is 4.9%, which applies to corporate profits.
- If you’re a business owner with employees, note that employers must pay state unemployment insurance taxes to fund unemployment benefits. Workers do not pay this tax; the employer pays it.) Employers also pay a small federal unemployment insurance tax (FUTA) on wages.
- Remember that federal payroll taxes for Social Security and Medicare are separate from Indiana’s taxes. The IRS collects those federal payroll taxes to fund federal programs and apply no matter which state you live in.
Conclusion: Ready to Simplify Indiana Tax Withholding?
Keeping up with Indiana’s combined state and local tax rules can be tricky—especially when county rates vary and exemptions shift.
Symmetry’s payroll solutions make it easier for employers and tax professionals to calculate accurate withholding for Indiana employees, no matter where they live or work.
We cover more state and local tax topics in these articles:
FAQs: Indiana State and Local Taxes
What is the current Indiana state income tax rate?
The current Indiana state income tax is a flat 3.05%. This is the rate for the tax year 2024 (filed in 2025).
Indiana law will gradually lower the rate to 2.9% by 2027, but as of April 2025, it’s 3.05% on your taxable income at the state level. This state tax is separate from any federal income taxes you owe.
Do Indiana counties charge local income taxes, and how much are they?
Yes. All 92 Indiana counties charge a local income tax in addition to the state tax. The local rates vary by county, roughly from 0.5% up to 3%.
For example, some counties have rates around 1%, while a few are near 3%. These rates are applied to your income on your Indiana income tax returns. You can check the Indiana Department of Revenue website for the current rates in your county.
What is the sales tax in Indiana, and are there any local sales taxes?
Indiana’s sales tax is 7% statewide. There are no local add-on sales taxes in Indiana, so 7% is the only sales tax you pay anywhere in the state. This 7% applies to most goods and many services.
Are groceries, prescription drugs, or clothing taxed in Indiana?
Groceries and prescription medications are generally exempt from Indiana’s 7% sales tax. That means you pay no sales tax when buying food at a grocery store or filling a medical prescription.
However, clothing is taxable at the full 7% rate (Indiana has no exemption for apparel). Also, other goods are taxed, such as prepared foods (restaurant and takeout meals), candy, and soft drinks.
How do property taxes vary across Indiana counties and cities?
They can vary by location, but Indiana’s property tax caps prevent extreme differences. Most areas generally have effective property tax rates of around 0.7% to 1% of a home’s value.
As per Indiana law:
- An owner-occupied home cannot be taxed above 1% of its assessed value
- A rental or farm property above 2%
- Other property above 3%
These caps mean a county with high spending might hit the 1% limit for homeowners while other counties have lower rates.
So, while property tax rates vary across Indiana, the state’s cap system ensures they stay within a narrow range for each property category.
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