Indiana income tax is separate from Federal income taxes paid. Each state has the authority to impose any types of taxes not expressly forbidden by the US Constitution or their own state constitution. The revenue is collected directly by the state and is used to fund public services. The state tax Indiana collected $16.4 billion in income taxes during fiscal year 2018, which was a 5.4% increase over fiscal year 2017.

When paying your Indiana income taxes, things can get complicated but don’t stress just yet— Community Tax has created an Indiana income tax calculator to simplify the process!

How much is Indiana state tax? Let’s take a closer look at some Indiana tax statistics to get a better understanding.

Each U.S. state has the right to administer their own taxes on residents and non-residents with nexus in Indiana, in addition to federal taxes imposed by the IRS. The federal government provides funding to each state, however, additional monies are necessary to provide other services. These services include, educational funding, transportation, health, family, and social services, veterans’ affairs, public safety, conservation, economic development, and government services.

As a result, some states are considered to be “tax-friendlier” than others. If you live in Indiana, you pay less than the average US taxpayer. In fact, Indiana has the 3rd lowest marginal tax rate in the country.

Indiana has a flat tax rate of 3.225% making it one of the lowest in the country. As such, there are no income tax brackets for your state taxes like you would see when filing your federal income tax return.

Despite the fact that there is a flat statewide rate, each of the Indiana counties levy their own taxes. The total Indiana income tax rate ranges between 3.23% -6.61% depending on which county you live in.

Pulaski has the highest additional income tax rate of 3.38% which totals to an income tax rate of 6.61% paid by residents, whereas Dearborn’s county tax rate is 0.6%, for a total income tax of 3.83%.

This rate is applied to your adjusted gross income (AGI) to calculate your taxable income.

Indiana use tax is incurred when purchases are made outside of the state without remitting sales tax to the seller.

For example, if an Indiana resident travels to a state that does not have sales tax and purchases items for use at home, they must pay a use tax on those items equivalent to the amount of the Indiana state tax rate.

The state of Indiana includes purchases that are made on the internet as subject to use tax. However, items purchased at garage sales and at certain auctions are considered to be exempt from use tax under the state’s casual sale exemption. If you paid sales tax on your purchases in another state at a rate of less than 7%, you would owe the difference between the amount paid and the 7% use tax owed.

Failing to pay any applicable sales taxes may subject you to interest and penalties in addition to the taxable amounts.

The statewide sales tax rate for Indiana is 7%. This makes the Indiana tax rate the second highest state tax rate in the country tied with three other states (Mississippi, Rhode Island, and Tennessee).

However, unlike many other states, individual counties and other local jurisdictions do not charge an additional tax.

• Alcohol

The state of Indiana charges an excise tax on wine, beer, and liquor sold by vendors in the state. This tax is paid by the vendor, but likely passed on to the consumer.

• Indiana Wine Tax

The wine tax is charged at a rate of $0.47 per gallon. If the percentage of alcohol of the wine exceeds 21%, the tax increases to $2.68 per gallon.

• Indiana Beer Tax

The excise tax for beer in Indiana is $0.12 per gallon.

• Indiana Liquor Tax

The excise tax for liquor in the state is $2.68 per gallon. If the percentage of alcohol is less than 15%, the excise tax is reduced to $0.47 per gallon.

It should be noted that the Indiana taxes are imposed in addition to anything assessed at the Federal level.

• Tobacco

Indiana charges an excise tax on both cigarettes and other tobacco products sold in the state. While this tax is charged to and paid by the vendor, the actual cost is typically passed on to the consumer in the retail price of tobacco products.

A tax of $0.995 per pack of 20 is charged for cigarettes. Other tobacco products in the state of Indiana are subject to an additional tax of 24% of the retail price.

• Vehicle Excise Tax

This tax is assessed at a rate of 1.25% annually based on the depreciated value of the vehicle.

• Gasoline Tax

The state of Indiana charges a state gas tax of 18 cents per gallon making it the highest in the country when combined with the federal excise tax. Gasoline in the state is also subject to an additional 7% use tax.

Indiana property owners enjoy one of the lowest property tax rates in the country. With a median tax rate of $1,051, only ten states enjoy lower rates.

• Counties in Indiana collect an average of 0.85% of the property’s assessed fair market value each year
• The average percentage of income that Hoosiers pay in property taxes is 1.87% based on an average income of $56,350 per year.
• The property tax levied in Indiana depends on the county in which you live.
• Hamilton County collects the highest property taxes in Indiana at an average of $2,274 (1.08% of the homes’ median value)
• Orange County enjoys the lowest property taxes in the state collecting an average of $515 per home (0.57% of the homes’ median value)

In limited circumstances, taxpayers may receive an exemption from property taxes. This is usually for religious organizations, not-for-profits, and specific economic development purposes.

The state of Indiana is one of the 38 states that does not have an estate or inheritance tax.

Indiana has numerous tax credits that can help residents reduce their tax liability in the state including:

Taxpayers can receive a credit of 20% of contributions made to the Indiana 529 plan up to a maximum of $1,000. New legislation for 2018 now allows taxpayers to receive a 10% credit, up to $500, for K-12 contributions made to the plan.

Taxpayers who make contributions to Indiana colleges and universities are eligible to receive a tax credit. Single taxpayers may receive a credit for the lesser of one half the amount contributed or $100. Married taxpayers filing a joint return may receive the lesser of one half the amount contributed or $200.

Contributions do not include any tuition payments made to the applicable college or university.

For taxpayers who qualified for the federal earned income credit, a state level tax credit may be available. The following income limitations apply in order to receive the credit.

• $49,194 for individual taxpayers or $54,884 if married and filing a joint return with three or more qualifying children.
• $45,802 for individual taxpayers or $51,492 if married and filing a joint return with two qualifying children.
• $40,302 for individual taxpayers or $46,010 if married and filing a joint return with one qualifying child.
• $15,270 for individual individual taxpayers or $20,950 if married and filing a joint return with no qualifying children.

If you are a resident of Lake County, Indiana, a special tax credit may be applicable for your Indiana state tax return. In order to qualify, all of the following must be true:

• You made property tax payments to Lake County on your primary residence. You can qualify even if you are in the process of purchasing the property, but still under contract.
• Your Indiana Modified Adjusted gross Income must not exceed $18,600 per year.
• You are not also claiming the Homeowner’s Residential Property Tax Deduction on your Indiana tax return.

Qualifying public educators may be eligible to take a credit of up to $100 for the cost of certain school supplies. If both spouses are qualified educators, each may be eligible for the $100 credit. Qualified educators must teach at an Indiana K-12 public school and includes teachers, librarians, counselors, principals, and superintendents.

Taxpayers may receive a tax credit for 50% of the amounts contributed to scholarship granting organizations. While taxpayers are not limited in the amount they may contribute, the entire program was limited to $14 million in tax credits allowed for the fiscal year ending June 30, 2019.

Indiana taxpayers may be eligible for an additional tax credit of between $40 and $140 if the following qualifications are met:

• You and/or your spouse were 65 or older on the last day of the tax year
• If married, you must file a joint tax return with your spouse
• Your Indiana adjusted gross income must not exceed $10,000
• The credit must be claimed no later than June 30 of the tax year
• You must be a resident of the state of Indiana of a minimum of six months during the taxable year
• You must not have been incarcerated for more than 180 days during the tax year

Indiana allows for an income deduction of a taxpayers’ personal exemptions as follows:

1. $1,000 for each personal exemption that would be allowable on the federal tax return
2. $1,500 exemption for certain dependent children
3. $1,000 personal exemption for each taxpayer and/or spouse aged 65 and over
4. $1,000 exemption for each taxpayer and/or spouse who is blind

An additional $500 exemption is available for taxpayers who are 65 and older if they have an adjusted gross income of less than $40,000.

• Eligible taxpayers may deduct up to $5,200 of disability payments from their Indiana gross income.

Indiana taxpayers or their spouses who are receiving military retirement income or military survivor benefits are eligible to deduct a maximum of $6,250 from their gross income.

Some taxpayers are eligible to deduct up to $5,000 of their military pay from their gross income. If both the taxpayer and their spouse are in the military and receive income, each spouse may deduct $5,000 for a total deduction of $10,000.

Similar to the Military Service Deduction, members of the National Guard may deduct up to $5,000 of their income received as a result of their service. If both the taxpayer and their spouse receive service income, each spouse is eligible to deduct up to $5,000 for a total deduction of $10,000.

Indiana families with children who are attending private school or being homeschooled are eligible to receive a $1,000 deduction on their Indiana tax return.

Indiana taxpayers receiving a nonmilitary civil service pension and are a minimum of 62 years of age, may receive a deduction for up to $16,000 of their Social Security and Tier 1 Railroad retirement income. The deduction is also eligible to taxpayers who receive survivor benefits.

Indiana taxpayers who pay rent on a property in the state that is subject to Indiana property taxes are allowed to take a deduction of up to $3,000 of the amount paid in rent during the year.

Indiana taxpayers are allowed to take a deduction of $2,500 of the amount paid in property taxes for their principal residence.

If you’re required to pay estimated taxes, you’ll need to calculate your estimated tax payments. The IRS and state of Indiana have the same filing deadlines in order to submit your estimated tax payments:

Filing taxes in the state of Indiana can be complicated. In order to ensure the most accurate filing and achieve the maximum refund allowed, consider consulting an expert at Community Tax to assist you!

There are several ways to pay your Indiana state taxes, including:

• Online – You can pay your state taxes online in two ways:
  
  • Electronic Bank Draft (E-Check) – You may pay your taxes with your checking or savings account. The state of Indiana does not charge a fee in order to take advantage of this service.
  • Credit or Debit cards – You may pay your taxes with a debit or credit card. The amount of the convenience fees paid to the credit card processor is dependent on the amount of the taxes owed.
• The Indiana Department of Revenue also accepts payment via the mail. Payment is accepted via check or money order.
• If you are unable to pay your taxes at the time of filing, you may set up a payment plan.

If you choose to set up a payment plan, you will need to wait until your tax return has been processed and you have received a bill for the amount owed in Indiana state taxes.

Please note that any unpaid balance at the time of filing may still be subject to penalties even with the payment agreement in place.

Don’t forget — you’re required to pay both Indiana and federal taxes.

In fact, you’ll need to file your federal income taxes first since that’s how you’ll get your taxable income. Remember, you’ll need to use the same filing status and most of the same deductions that you used on your federal taxes when doing your state taxes.

Sound like a lot to deal with? The team at Community Tax can help you simplify the process and make sure your taxes are filed correctly!

This information is accurate as of 2019. Special circumstances which can affect your tax return may apply.