Tax in Indiana: a complete guide

Indiana income tax  

Wherever you choose to live in the US, you’ll be subject to federal income tax according to the bracket you fall into. There are seven total as of 2023: 

On top of this, you’ll usually need to pay state-level income tax. Indiana is in the group of states that charge a flat income tax rate.  

According to the Tax Foundation, Indiana’s flat rate for individual income tax is 3.15 percent as of 2023. This applies to all Indiana-earning residents, regardless of their income. Some counties in Indiana may also levy additional personal income taxes at the local level, ranging from 0 to approximately three percent, depending on the area in question. Meanwhile, the flat rate for corporate income tax stands at 4.9 percent. 

Indiana sales tax  

The sales tax rate in Indiana, to be paid on most purchases made in the state, is 7 percent. Unlike in many other US states, local sales taxes aren’t levied, so you’re more likely to know in advance how much tax you’ll pay on a purchase than in a state like California. Sales tax exemptions include: 

In contrast, some goods are taxed at a higher rate. There’s a “sin tax” to be aware of for all of the following: 

Indiana property tax  

Indiana property tax is comparably low, standing at an average of 0.85 percent, according to Tax Rates.org. Accounting for the average property value statewide, we can determine that the average annual property tax amount residents pay is $1,051. This isn’t even accounting for certain deductions available to older people. 

Like in any state, the actual cost of this tax depends on the priciness of the area you choose to reside in. Here are some yearly amount examples from a range of different Indiana counties: 

Indiana motor tax  

Alongside paying the standard seven percent sales tax on your initial purchase of a new or used motor vehicle in Indiana, you’ll need to cover any registration fees and pay an annual excise tax for your car, van, motorbike, etc. The amount you pay for this excise tax will differ depending on where you are in the state and the specifics of your vehicle, with some areas adding additional local taxes into the mix. 

To keep your vehicle running and functioning, the expense doesn’t stop there. You will, of course, also need to pay for fuel and it’s associated tax. Currently, gasoline in Indiana is taxed at $0.34 per gallon, while diesel is taxed at $0.57 per gallon. 

Indiana estate tax 

There is no estate tax levied by the Indiana state government, though you will still be subject to federal estate tax guidelines regardless of where in the country you live. In many cases, these guidelines won’t apply, as the threshold for federal estate taxation is almost $13 million.  

On the subject of “death taxes,” as they’re often called, there’s also no state-level inheritance tax in Indiana. However, you may still be subject to it if you receive money from a loved one in a different state with different inheritance taxation rules. 

Indiana retirement tax

If enjoying your golden years in the stunning state of Indiana sounds appealing, you might wonder, “Is this a retiree-friendly place? Will I receive any special benefits or deductions?” The answer to both questions is yes, though perhaps not to the fullest extent that would be possible.  

Social Security benefits are tax exempt, allowing you to avoid the flat income tax, but other forms of retirement income like 401(k)s and IRAs are not. Some deductions and discounts are available. For instance, over 65s can deduct $14,000 from their property value to reduce the due amount of property tax, but less than in states like Alaska and Florida. You can also check out the complete guide to retirement in Indiana here.

For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.    

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