Last Updated: April 2026
Indiana's income tax system has two layers: a low state flat rate (among the lowest in the Midwest) plus a county income tax that varies significantly by county. Marion County (Indianapolis) imposes 2.02% on top of the 3.05% state rate — a total of 5.07% — while lower-income counties may charge only 0.5–1%. Indiana is a relatively tax-competitive state with moderate overall burden. This guide covers Indiana's full tax picture, county tax structure, retirement income treatment, and exit planning for residents considering a move.
Indiana's two-layer income tax system requires understanding both the state rate and your county's rate:
Indiana's flat rate has been declining: 3.23% (2022) → 3.15% (2023) → 3.05% (2024) → 3.0% (2025, estimated) → 2.9% (2026, if revenue targets met). Indiana's goal is to reach 2.9% over time. At 3.05%, Indiana has one of the lower flat income tax rates in states that impose income tax — comparable to Arizona (2.5%), North Carolina (4.5%), and Michigan (4.25%).
Every Indiana resident pays both the state rate AND their county of residence rate. County rates vary widely:
| County | County Rate | Combined (State + County) |
|---|---|---|
| Marion (Indianapolis) | 2.02% | 5.07% |
| Hamilton (Fishers/Carmel) | 1.1% | 4.15% |
| Allen (Fort Wayne) | 1.48% | 4.53% |
| Lake (Hammond/Gary) | 1.5% | 4.55% |
| Tippecanoe (Lafayette) | 1.28% | 4.33% |
| Monroe (Bloomington) | 2.035% | 5.085% |
| St. Joseph (South Bend) | 1.75% | 4.8% |
Marion County has the highest county rate at 2.02%, making Indianapolis residents pay approximately 5.07% combined — comparable to Ohio's effective rate. Moving from Marion County Indianapolis to Carmel (Hamilton County) saves 0.92% (county rate difference) without leaving Indiana.
Indiana's retirement income treatment is less favorable than some Midwestern neighbors: $2,000 deduction for retirement income age 62+ (very modest — only saves $61–$100 in state tax); military pensions fully exempt; some federal civil service pensions partially exempt (Archer/CSRS exemptions based on contributions); Social Security fully exempt. Retirees with large IRA or private pension income pay Indiana state + county tax on most of it (above the $2,000 deduction). Moving to Florida or Tennessee eliminates this burden.
For a Marion County (Indianapolis) resident at $100,000 income:
For a Hamilton County (Fishers) resident at $100,000: $3,050 + $1,100 = $4,150 Indiana total → $4,150 annual savings by moving to Florida. Indiana's relatively low rates mean the absolute savings are moderate compared to departing California or New York — but still meaningful over a career or retirement.
Indiana uses a standard domicile-based residency test:
Indiana defines a resident as someone domiciled in Indiana. There is no statutory day-count trap for most taxpayers. You are domiciled in Indiana if Indiana is your permanent home — where you intend to return and consider home base. To terminate Indiana residency: establish domicile elsewhere (driver's license, voter registration, update will/estate docs), and physically move. Indiana does not aggressively audit departing residents in the way New York or California might, given its lower tax rate.
County income tax is based on your county of residence on January 1 of each tax year. If you move from Marion County to another state before January 1, you owe no Marion County tax for that year. If you move during the year, Marion County tax applies for the portion of the year you were a Marion County resident (prorated).
Indiana's constitutional property tax caps (1% of assessed value for homesteads) are one of the state's tax advantages. If you own Indiana real estate after departure, your property tax obligations continue, but the 1% cap limits the maximum tax liability on investment property (homesteads lose the 1% cap if no longer owner-occupied — they move to the 2% other residential cap).
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Indiana Tax Help for US Expats →Indiana allows counties to levy an income tax (County Adjusted Gross Income Tax, or CAGIT/CEDIT) to fund local services. Unlike Ohio's city-level income taxes, Indiana's taxes are county-level — all municipalities within a county pay the same county rate. The county taxes fund local government operations, schools, and infrastructure without requiring separate municipal tax returns. Indiana residents file a single state return that calculates both the state rate and county rate together — there is no separate county filing required. The county rate is based on your county of residence on January 1.
Yes — Indiana voters approved a constitutional amendment in 2008 (Article 10, Section 1 of the Indiana Constitution) that caps property taxes at 1% of assessed value for homesteads, 2% for other residential property (rental homes, second homes), and 3% for commercial/agricultural property. This constitutional protection means the legislature cannot simply pass a law to raise property taxes beyond these caps — it would require another constitutional amendment approved by voters. The cap has provided significant property tax stability for Indiana homeowners, particularly in higher-value areas of Hamilton County and Boone County suburbs of Indianapolis.
Ohio has a significant advantage over Indiana for business owners through its Business Income Deduction: the first $250,000 of business income on an Ohio individual return is completely tax-free. Indiana has no comparable deduction — all pass-through business income is taxed at the regular 3.05% state rate plus the county rate. For a small business owner with $200,000 of pass-through income: Ohio tax = $0 (fully covered by the BID); Indiana Marion County tax = $200,000 × 5.07% = $10,140. Ohio is meaningfully better for small business owners despite its higher headline rate, due to the BID. For income above $250,000, the comparison shifts — Indiana's lower rates apply to the full amount while Ohio's 3.99% top rate (above $100K) applies.