Data Notice: Tax rates, brackets, and exemptions cited in “Taxes in Indiana: State Tax Guide 2026” are projected 2026 figures based on enacted Indiana legislation and IRS inflation adjustments. The Indiana legislature may enact mid-year changes. Verify with the Indiana Department of Revenue before filing. [taxes-indiana-2026]

Taxes in Indiana: State Tax Guide 2026

The content in this taxes in indiana: state tax guide 2026 guide is educational and informational. It should not be relied upon as tax, legal, or financial advice. Individual tax situations require personalized analysis by a qualified professional. Consult a CPA or enrolled agent for your specific needs.

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.