Last Updated: April 2026
Indiana stands apart from most US states because every single one of its 92 counties levies a county-adjusted income tax (CAIT) on residents. Unlike states where local income taxes are confined to cities (like Ohio or Pennsylvania), Indiana's county tax system ensures that no Hoosier — rural or urban — escapes a local income tax layer. The rates are set by each county's commissioners and can change annually, making Indiana's local tax landscape one of the most granular in the country.
Combined with Indiana's flat 3.05% state income tax (reduced from 3.23% in 2023 as part of a phased reduction), the total Indiana income tax burden ranges from 3.55% to 6.43% depending on your county of residence. This guide explains how the system works, which counties charge the most and least, and how Indiana's total burden compares to neighboring states like Ohio, Michigan, and Illinois.
Indiana's County Adjusted Income Tax (CAIT) is withheld by employers based on the employee's county of residence — not the county where they work. This resident-based approach means that if you live in Marion County (Indianapolis) but work in Hamilton County, your employer withholds Marion County's tax rate on your wages, not Hamilton County's. Each January, the Indiana Department of Revenue publishes the official tax rates for all 92 counties for the upcoming year.
The county tax is applied to the same adjusted gross income as the state tax, after allowable deductions. Indiana's main deduction is a $1,000 personal exemption per taxpayer plus $1,500 per dependent. County taxes are filed as part of the standard Indiana state tax return (Form IT-40), so there is no separate county filing requirement. Employers use the Indiana WH-4 withholding form, which asks employees to specify their county of residence, to calculate the correct withholding.
Among Indiana's 92 counties, rates vary significantly. Here are the highest and lowest county rates for 2026:
| County | County Rate | State Rate | Combined |
|---|---|---|---|
| Pulaski (highest) | 3.38% | 3.05% | 6.43% |
| Jasper | 2.90% | 3.05% | 5.95% |
| Ohio County | 2.50% | 3.05% | 5.55% |
| Marion (Indianapolis) | 2.02% | 3.05% | 5.07% |
| Hamilton (Carmel/Fishers) | 1.10% | 3.05% | 4.15% |
| Hendricks | 1.50% | 3.05% | 4.55% |
| Boone (lowest tier) | 1.50% | 3.05% | 4.55% |
| Multiple counties (lowest) | 0.50% | 3.05% | 3.55% |
Hamilton County, which includes the affluent suburbs of Carmel, Fishers, and Noblesville, has one of the lowest county rates despite being one of Indiana's wealthiest counties. This reflects the county's strong property tax base, which reduces reliance on income tax revenue.
The Indianapolis metro area (commonly called the 'Indy metro' or nine-county MSA) illustrates how dramatically county rates can vary within a single metro area. Marion County (Indianapolis proper) charges 2.02%, while surrounding suburban counties charge significantly less. This creates a modest tax incentive to live in the suburbs — though property values and cost of living differences often dwarf the income tax differential.
For a worker earning $75,000, the difference in county income tax between living in Marion County (2.02% = $1,515/year) vs Hamilton County (1.10% = $825/year) is approximately $690 per year. For $150,000 earners, the gap doubles to approximately $1,380/year. This is meaningful but rarely the primary driver of residential location decisions in the Indianapolis metro.
Non-residents who earn income in Indiana are subject to Indiana state income tax on their Indiana-sourced income. However, non-residents do not pay Indiana county income tax — county tax applies only to Indiana residents. Indiana has reciprocity agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin, meaning residents of those states working in Indiana pay income tax only to their home state (not to Indiana), and vice versa.
If you work in Indiana but live in Illinois or another non-reciprocal state, you will owe Indiana state income tax on your Indiana wages, and you'll owe your home state tax as well — though you'll receive a credit for taxes paid to Indiana to avoid double taxation. The Indiana reciprocity agreements simplify filing for the large number of cross-border commuters in the Cincinnati, Louisville, and Chicago metro areas.
When adding federal income tax, Indiana's total income tax burden is moderate by national standards. At $100,000 income (single filer, standard deduction), an Indianapolis (Marion County) resident would pay approximately: Federal ~$17,400 + Indiana State ~$2,930 + Marion County ~$1,940 = ~$22,270 total (22.3% effective rate). Compare this to a Pulaski County resident at the same income: Federal ~$17,400 + State ~$2,930 + County ~$3,245 = ~$23,575.
Indiana does not levy a state sales tax on groceries and has a 7% statewide sales tax with no additional local sales tax, unlike neighboring Ohio or Illinois where local sales taxes add additional burden. Indiana's property taxes are also capped under Circuit Breaker legislation at 1% of assessed value for homestead property, making Indiana's overall tax environment relatively predictable for residents.
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Get Matched with a Local CPA →Indiana county income tax is withheld based on your county of residence — where you live — not where you work. When you start a job in Indiana, you complete Form WH-4 which asks for your home county. Your employer uses your resident county's rate for withholding purposes. If you move to a different county mid-year, you should update your WH-4 with your employer so the correct rate is withheld going forward.
Several Indiana counties charge the minimum county income tax rate of 0.50%. Combined with Indiana's flat 3.05% state income tax, residents of these counties pay a total state + county rate of 3.55% — the lowest possible in Indiana. Even at this minimum, Indiana residents pay more state-level income tax than residents of the nine US states with no state income tax at all, such as Texas, Florida, and Tennessee.
No. Indiana county income tax applies only to Indiana residents. If you live in Kentucky, Ohio, or Michigan and commute to work in Indiana, you pay Indiana state income tax on your Indiana wages (unless your state has a reciprocity agreement with Indiana, in which case you may only owe your home state tax). Either way, you do not owe Indiana county income tax as a non-resident.
Indiana county councils can adjust their county income tax rates, but changes must be adopted by the county income tax council by a specific deadline each year to take effect the following January. The Indiana Department of Revenue publishes the official rate table annually. While rates do change, most counties have maintained relatively stable rates for several years. Hamilton County's rate has remained at 1.10% for an extended period, while some rural counties have increased their rates to cover budget shortfalls.
Indiana passed legislation in 2022 to phase down the state income tax rate over several years. The rate was 3.23% before the cuts and has reached 3.05% as of recent tax years. Further reductions are scheduled, potentially bringing the rate to 2.9% by 2026 depending on the state meeting revenue benchmarks. County rates are set separately by each county and are not affected by state rate changes. You should verify the current rate with the Indiana Department of Revenue for your filing year.
Both states have broad local income tax systems, but they differ significantly. Indiana's county tax is resident-based — you pay based on where you live regardless of where you work. Ohio's municipal income tax is primarily workplace-based — many Ohio cities tax income earned within their boundaries regardless of where you live. Ohio municipal rates range from 0% to 3%, while Indiana county rates range from 0.50% to 3.38%. For a resident of a high-tax Ohio city like Columbus (2.5%) who works elsewhere, they still owe the Columbus rate; Indiana's system would use their home county rate instead.
Indiana offers some tax benefits for retirees. The state exempts Social Security income from Indiana income tax entirely. There is also an additional exemption for other retirement income (pensions, IRA distributions) of up to $2,000 per person, and military retirement income is fully exempt. However, Indiana's county income taxes apply to most retirement income, and Indiana's 7% sales tax is among the higher flat sales tax rates in the Midwest. Overall, Indiana is moderately tax-friendly for retirees — better than high-income-tax states like California or New York, but not as favorable as zero-income-tax states like Florida or Tennessee.