Indiana Tax Rates

This post provides an overview of the primary taxes levied at the state level in Indiana. The information contained here is intended for general reference. For individuals or businesses seeking comprehensive support with tax filings, compliance, or strategic planning, indinero offers expert services. We encourage all who utilize this summary to explore the tailored tax support available through indinero.

Individual Income Tax

Indiana imposes a flat rate individual income tax at the state level.

  • State Rate: The state income tax rate is a flat 3.00% (for tax year 2025, gradually reduced from 3.05% in 2024) of adjusted gross income, subject to state deductions and exemptions. This flat rate simplifies the tax system, as the percentage does not change based on income level.
  • Local Income Tax: A key feature of Indiana’s tax system is the mandatory Local Income Tax (LIT), which is imposed by each of the state’s 92 counties. LIT rates vary significantly by county, generally ranging from 0.50% up to 3.0%. This local tax is paid in addition to the state rate.
  • Retirement Income: Social Security benefits are not taxable in Indiana. However, income from pensions, 401(k) plans, and IRAs is generally taxed as regular income, with an exception for military retirement pay, which is fully exempt.

Sales and Use Tax

Sales tax is a significant source of state revenue, and Indiana is one of the states that does not permit local sales taxes.

  • State Rate: The general state sales tax rate is a high 7.00% on the retail sale of tangible personal property, leases, and specific services.
  • Combined Rate: Because local jurisdictions (counties and cities) cannot impose their own general sales tax in addition to the state rate, the combined rate across Indiana is uniformly 7.00%.
  • Exemptions: Essential items like groceries (unprepared food) and prescription drugs are exempt from the 7.00% state sales tax.
  • Use Tax: A corresponding state use tax of 7.00% applies to taxable items purchased outside of Indiana but used, stored, or consumed in the state if Indiana sales tax was not collected.

Property Tax (Ad Valorem Tax)

Property taxes in Indiana are administered and collected exclusively at the local level by various taxing units (school districts, counties, cities, etc.) and do not fund state government services.

  • Assessment: Property is assessed at its market value-in-use, which is close to its current market value.
  • Circuit Breaker Caps: Indiana has a unique and strict property tax control system through constitutional “circuit breaker” tax caps, which limit the maximum amount of property tax that can be billed to a property owner. The tax caps are based on the property’s gross assessed value:
    • 1% cap for homestead (owner-occupied primary) residences.
    • 2% cap for residential property that is not a homestead and for agricultural land.
    • 3% cap for all other real and personal property (commercial, industrial, etc.).
  • Tax Calculation: The tax is calculated by applying the local millage rate to the net assessed value. If the gross tax liability (after other deductions and credits) exceeds the constitutional cap, a Circuit Breaker Credit is applied to reduce the taxes owed down to the maximum cap.

Corporate Income Tax

Indiana imposes two major taxes on corporate income: the Corporate Adjusted Gross Income Tax and the Corporate Supplemental Net Income Tax.

  • Corporate Adjusted Gross Income Tax (CAGIT): This is the primary corporate income tax, levied at a rate that is gradually being reduced. The current rate is 4.9% (down from 5.2% in prior years) of the corporation’s adjusted gross income allocated to Indiana.
  • Corporate Supplemental Net Income Tax (CSNIT): This secondary tax is imposed at a rate of 1.9% on the portion of a corporation’s income that remains after the CAGIT is paid. This tax is applied before any apportionment.
  • Apportionment: For multi-state corporations, Indiana uses a single sales factor apportionment method to determine the amount of income subject to the tax.

Unique Local Taxes

In addition to the state taxes, Indiana allows certain local taxes dedicated to specific purposes.

  • County Innkeeper’s Tax (CIT): This tax is imposed by counties on lodging transactions (e.g., hotel rentals) and is dedicated to funding tourism promotion and conventions. The rates vary by county.
  • Food and Beverage Tax (FAB): Some counties and cities may impose a dedicated sales tax on food and beverages sold at restaurants, which is typically used for specific economic development or infrastructure projects.

R&D Offer Quiz

Step 1 of 3

Answer to find out if you're eligible for R&D tax credits.

Do the activities performed relate to a new or improved business component’s function, performance, reliability, quality, or composition?(Required)
For Example: A mid-sized packaging company develops a slightly modified cardboard box design to improve its stacking strength (reliability) for warehouse storage, involving minor adjustments to the corrugation pattern to reduce collapse under standard weight loads.
Is your company trying to discover information to eliminate uncertainty concerning the capability or method for developing or improving a business component?(Required)
For Example: A furniture manufacturer investigates whether a cheaper wood adhesive can hold joints as effectively as the current one during assembly, testing bond strength to resolve doubts about its capability in standard production lines.
Do the activities performed constitute a process of experimentation?(Required)
For Example: An auto parts supplier runs a series of bench tests on different lubricant formulations to find one that reduces friction in engine bearings more effectively, systematically comparing wear rates over simulated operating cycles.