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Indiana Income Tax 2026: Flat 2.95% Rate, Deductions & Free Calculator

October 17, 2026 · 5 min read · By the DollarWise team
Indiana Income Tax 2026: Flat 2.95% Rate, Deductions & Free Calculator
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Indiana has one of the lowest flat income tax rates in the country — and it keeps dropping. For the 2026 tax year, the rate is 2.95%, down from 3.0% in 2025 and 3.05% in 2024, as part of a legislated phase-down (2.90% is scheduled for 2027). These figures are confirmed by the Indiana Department of Revenue and the Tax Foundation’s 2026 data.

But the state rate is only half the story: every Indiana county adds its own income tax on top. This guide covers the 2026 state rate, how county taxes work, the deductions and credits worth claiming, and how to estimate your total in seconds with our free Indiana income tax calculator.

The 2026 Indiana rate: flat 2.95%

Indiana taxes all individual adjusted gross income at a single flat rate — no brackets. For 2026:

Indiana taxable income x 2.95%

The rate has been falling steadily under a phased reduction plan: 3.23% as recently as 2017, 3.05% for 2024, 3.0% for 2025, and now 2.95% for 2026. Future cuts depend on the state hitting revenue benchmarks, so the downward trend may continue.

Don’t forget county income tax

On top of the state rate, every Indiana county levies its own income tax. Rates vary widely — from around 0.5% in some counties to over 3% in others. Marion County (Indianapolis) charges 2.02%.

Your county rate is based on where you lived on January 1 of the tax year, not where you work. The Indiana Department of Revenue publishes the current county rates in Departmental Notice #1 each year, and rates can change in January or October.

So a Marion County resident’s combined rate is 2.95% + 2.02% = 4.97% — still competitive nationally, but noticeably more than the headline state rate.

Deductions and credits that lower your bill

Renter’s deduction. Renters can deduct up to $3,000 of rent paid on an Indiana home — one of the more generous renter breaks in the country.

Homeowner’s property tax deduction. Homeowners deduct a portion of property taxes paid, on top of the state’s constitutional property tax caps.

Dependent exemptions. Indiana allows a $1,000 exemption per dependent, plus an additional $1,500 for certain dependent children.

Retirement and Social Security deductions. Indiana offers deductions for Social Security benefits and for certain retirement income, including a $6,250+ deduction for taxpayers 62 and older with lower incomes.

Credits. Indiana matches 10% of your federal Earned Income Tax Credit, and offers a 20% credit (up to $1,500) for contributions to a CollegeChoice 529 education savings plan.

A quick calculation example

Say you’re a Marion County resident with $70,000 in Indiana AGI, you rent ($3,000 renter’s deduction), and you claim one dependent ($1,000 exemption):

  1. Start: $70,000 AGI
  2. Subtract renter’s deduction and exemption: $70,000 - $3,000 - $1,000 = $66,000
  3. State tax: $66,000 x 2.95% = $1,947
  4. County tax: $66,000 x 2.02% = $1,333
  5. Combined before credits: $3,280

Apply any credits (EITC, 529, etc.) to reach your final bill.

Filing basics

Indiana returns (Form IT-40) are due April 15 following the tax year — so 2026 returns are due April 15, 2027. If you expect to owe $1,000 or more and don’t have enough withheld, Indiana requires quarterly estimated payments on the same schedule as federal estimates, with a 10% underpayment penalty per period.

How Indiana compares to its neighbors

Indiana’s 2.95% flat rate (plus county tax) stacks up well regionally:

Illinois charges a flat 4.95% with no county layer — higher than most Indiana residents’ combined rate.

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Ohio uses graduated brackets up to 3.5% — comparable for middle earners, and Ohio has no county income tax layer in most areas.

Michigan charges a flat 4.25% — higher than Indiana’s state rate, with no county income tax.

Kentucky charges a flat 4% — higher than Indiana’s 2.95% state rate.

Illinois vs. Indiana for commuters: if you live in one state and work in the other, reciprocal agreements mean you generally pay income tax to your state of residence — but county taxes and withholding details make this worth checking with a tax pro if you cross the border daily.

Indiana’s combination of a low, falling state rate and modest county rates keeps its total income tax burden among the lowest in the Midwest.

Indiana tax deadlines and penalties

April 15 is the deadline for both filing and payment of 2026 Indiana returns. Extensions extend filing, never payment.

Estimated payments kick in when you expect to owe $1,000 or more beyond withholding — the quarterly schedule mirrors the federal one, and the underpayment penalty is 10% per period.

County tax is filed on the same IT-40 return as state tax — one form covers both, which keeps the extra layer painless.

Keep Departmental Notice #1 handy each January: county rates can change mid-year, and your withholding should reflect the current rate.

Frequently asked questions

What is the Indiana income tax rate for 2026?

A flat 2.95% on individual adjusted gross income, confirmed by the Indiana Department of Revenue and the Tax Foundation. It drops to a scheduled 2.90% in 2027.

Do I pay county income tax in Indiana too?

Yes — every county adds its own rate (roughly 0.5% to over 3%; Marion County is 2.02%), based on where you lived on January 1 of the tax year.

How do I calculate my Indiana income tax?

Subtract Indiana deductions and exemptions from your AGI, multiply by 2.95%, add your county tax, and subtract credits. Or use our free calculator at /tools/indiana-income-tax-calculator/.

What deductions can I claim on my Indiana return?

Key ones: the renter’s deduction (up to $3,000), homeowner property tax deduction, $1,000 per dependent exemption, retirement/Social Security deductions, plus EITC and 529 credits.

#tax#indiana#income tax
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Written by the DollarWise team

We turn confusing money topics into plain-English guides for beginners. Every article is written to be actionable on day one — no jargon, no hype, no sales pitch.

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