Indiana — Personal Income Tax

Indiana imposes an adjusted gross income tax on two categories of taxpayers: (1) resident persons on their entire adjusted gross income from all sources, and (2) nonresident persons on the portion of their adjusted gross income derived from sources within Indiana. The tax applies each taxable year at rates that have been phased down by statute under IC 6-3-2-1(a).

Current and Future Rate Schedule

The state adjusted gross income tax rate for individuals follows a multi-year phase-down schedule:

• Taxable years beginning in 2024: 3.05%
• Taxable years beginning in 2025: 3.00%
• Taxable years beginning in 2026: 2.95%
• Taxable years beginning in 2027, 2028, and 2029: 2.90%

Conditional Future Reductions Beginning in 2030

Under legislation enacted in April 2025 (SB 451), Indiana's individual income tax rate will decrease by 0.05 percentage points in even-numbered years beginning January 1, 2030, down to a floor of 2.55%, provided that specified revenue triggers are met. The State Budget Agency must determine whether state general fund revenue collections in each of the relevant fiscal years exceed the immediately preceding fiscal year's collections by at least 3.5%. If the revenue conditions are satisfied, the rate will step down as follows: 2.85% (2030–2031), 2.80% (2032–2033), and so on, reaching 2.55% no earlier than 2044. Each rate reduction is contingent upon meeting the statutory revenue benchmarks.

County Income Tax

Indiana also permits all 92 counties to impose local income taxes (county adjusted gross income tax) on top of the state rate. As of 2026, all Indiana counties have adopted a local income tax. County rates vary and are administered separately under IC 6-3.6. The combined effective rate for Indiana residents is the sum of the state rate and the applicable county rate.

Source: Ind. Code § 6-3-2-1; Indiana DOR Rates, Fees & Penalties; Indiana DOR Departmental Notice #1 (effective Jan. 1, 2026)

For individuals, Indiana adjusted gross income is federal adjusted gross income as defined in Internal Revenue Code Section 62, with state-specific modifications. Indiana law requires numerous additions and subtractions to federal AGI, including: adding back any state income tax deductions allowed federally, subtracting federally exempt income that remains federally exempt under constitutional limits, and subtracting Social Security and Railroad Retirement benefits included in federal gross income under IRC Section 86. The statute lists over thirty specific modifications that practitioners must apply to convert federal AGI to Indiana AGI.

Source: Ind. Code § 6-3-1-3.5(a)

Indiana Code § 6-3-4-1 establishes which individuals must file an Indiana adjusted gross income tax return. The statute identifies three categories of required filers.

Resident Individuals

Under IC 6-3-4-1(1), every resident individual having gross income (as defined in IC 6-3-1-3.5) must file a return. The statute does not specify a de minimis threshold in dollar terms; rather, it requires a return from every resident individual who has gross income as computed under Indiana's adjusted gross income definition. Indiana's definition of gross income in IC 6-3-1-3.5 begins with federal adjusted gross income and applies state-specific modifications, including subtractions for personal exemptions.

The Indiana Department of Revenue states in its Individual Income Tax Overview that full-year Indiana residents must file a return if their gross income exceeds their total exemptions claimed, and as a general rule, filing is required if gross income is $1,000 or more. This administrative threshold reflects the $1,000 base personal exemption available to individual filers under IC 6-3-1-3.5(a)(3). A resident whose gross income does not exceed their total exemptions would owe no tax after applying those exemptions.

Part-Year Residents

Indiana treats an individual who changes domicile into or out of Indiana during the taxable year as a part-year resident. Under IC 6-3-4-1(1), part-year residents are subject to the same statutory filing requirement as full-year residents: they must file if they have gross income as defined in IC 6-3-1-3.5. The Department of Revenue's guidance states that part-year residents must file if they received any income while living in Indiana. Part-year residents are taxed on all income received while domiciled in Indiana, plus any income from Indiana sources during the period of nonresidence.

Nonresident Individuals

Under IC 6-3-4-1(2), every nonresident individual having for the taxable year any gross income from sources within the state of Indiana must file a return. The statute contains a narrow exception: a "team member" (as defined in IC 6-3-2-2.7, which covers certain athletes and entertainers performing in Indiana) who is covered by a composite return filed under IC 6-3-2-2.7 is not required to file an individual return. Aside from this exception, the statute does not contain a de minimis threshold; a nonresident with any amount of Indiana-source gross income is required to file.

Filing Status Conformity

Indiana requires taxpayers to use the same filing status (single, married filing jointly, married filing separately, head of household, or qualifying surviving spouse) on their Indiana return as they used on their federal return. A taxpayer who files a joint federal return must file a joint Indiana return; a taxpayer who files separately on the federal return must file separately on the Indiana return.

Form Selection

Full-year residents file Form IT-40 (Individual Income Tax Return). Part-year residents and nonresidents file Form IT-40PNR (Part-Year or Full-Year Nonresident Individual Income Tax Return), which includes schedules to apportion income between resident and nonresident periods for part-year residents and to identify Indiana-source income for nonresidents.

Source: Ind. Code § 6-3-4-1; Indiana DOR Individual Income Tax Overview

Individual income tax returns are due on or before April 15 following the close of the taxable year. If April 15 falls on a weekend or holiday, the due date becomes the next business day. Indiana automatically grants an extension of time to file to taxpayers who have received a federal extension; no separate state extension application is required. The extension deadline allows taxpayers until the federal extension deadline to file, but the extension applies only to filing—payment of any tax due remains due on the original April 15 deadline.

Source: Indiana DOR Individual Income Tax Overview; Ind. Code § 6-3-4-3

Every employer making payment of wages must deduct and withhold Indiana adjusted gross income tax and any applicable county income tax from employee wages. The withheld amounts immediately become money of the state, and the employer holds them in trust for Indiana. Employers must remit withheld taxes to the Department of Revenue on forms prescribed by the department, furnish employees an annual record of withheld amounts within thirty days after the calendar year ends, and file Form WH-3 annual withholding reconciliation reports within thirty-one days after the calendar year ends.

Source: Ind. Code § 6-3-4-8; Indiana DOR Information Bulletin #52

Indiana determines residency status for income tax purposes based on a taxpayer's domicile—the place where a person has their true, fixed, and permanent home and to which they intend to return after any temporary absence. Under IC 6-3-1-12, a "resident" means a natural person domiciled in Indiana, while a "nonresident" means a natural person not domiciled in Indiana. This domicile-based test differs from physical presence tests used in some other states; a person can be an Indiana resident even if they spend significant time physically outside the state during the taxable year.

Rebuttable Presumption of Domicile

Indiana regulations at 45 IAC 3.1-1-22.5 establish a rebuttable presumption: a person is presumed to have their domicile in a given state for the year if, during that year, the person maintained a permanent place of residence (whether as owner, renter, or other occupier) in that state and the person was present in that state for more than 183 days during the tax year. This presumption can be rebutted through the presentation of substantial contrary evidence.

When the presumption does not apply or has been rebutted, the Department of Revenue examines a multi-factor test to determine domicile. Under 45 IAC 3.1-1-22.5, factors the Department may consider include:

• Where the person voted or registered to vote
• Where the person registered or titled motor vehicles
• Where the person maintained driver's licenses or state-issued identification
• Where the person maintained bank accounts or other financial relationships
• Where the person held professional licenses or memberships
• Where the person claimed homestead property tax exemptions or deductions
• Where the person maintained mailing addresses for official correspondence
• Where the person had a place of employment or business
• The location of the person's family and social connections
• Where minor children attend school

No single factor is controlling; the Department evaluates the totality of circumstances to determine where the person had the requisite intent to make a place their permanent home.

Part-Year Residents

A person who changes domicile into or out of Indiana during the taxable year is a part-year resident. Indiana taxes part-year residents on all income received while domiciled in Indiana, plus any income from Indiana sources during the period of nonresidence. The determination of when a change of domicile occurs depends on when the person both physically moved to the new state and formed the intent to make the new state their permanent home. Actions such as registering to vote, obtaining a driver's license, and registering motor vehicles in the new state are evidence of intent to establish a new domicile, but intent is ultimately a factual question.

Special Rules for Certain Populations

Under 45 IAC 3.1-1-23, Indiana residents who become members of the military service remain Indiana residents regardless of their geographical assignments unless they take affirmative steps to change their legal residence through filing of the appropriate federal form (DD Form 2058). Additionally, U.S. citizens domiciled in Indiana who go to a foreign country for a temporary period (for employment, study, research, or other limited purposes) while maintaining a place of abode in Indiana immediately prior to departure generally remain domiciled in Indiana unless they have permanently established domicile in the foreign country or another state.

Source: Ind. Code § 6-3-1-12; 45 IAC 3.1-1-22 through 3.1-1-23; Indiana DOR Information Bulletin #55

Indiana provides several categories of personal exemptions that reduce adjusted gross income for individual taxpayers. These exemptions are structured as subtractions from federal adjusted gross income when computing Indiana adjusted gross income under IC 6-3-1-3.5(a). Each exemption referenced below refers to the Internal Revenue Code as it was in effect on January 1, 2017.

Base Personal Exemption

Every individual taxpayer subtracts $1,000 from adjusted gross income. In the case of a joint return filed by a husband and wife, each spouse subtracts $1,000, for a total personal exemption of $2,000 on a joint return.

Dependent Exemption

A taxpayer is permitted a $1,000 exemption for each dependent who qualifies under Section 151(c) of the Internal Revenue Code (as effective January 1, 2017). The exemption applies to qualifying children and qualifying relatives as defined by federal law before the Tax Cuts and Jobs Act suspended the federal personal exemption deduction.

Additional Exemption for Age 65 or Over and Blindness

A taxpayer is permitted an additional $1,000 exemption for each additional amount allowable under Section 63(f) of the Internal Revenue Code. Under IRC Section 63(f), a taxpayer receives one additional amount for being age 65 or over at the end of the taxable year and a separate additional amount for being blind. A taxpayer who is both age 65 or over and blind may claim both exemptions, for a total of $2,000 in additional exemptions. If a joint return is filed, each spouse who is age 65 or over or blind is entitled to his or her own additional exemption(s).

Additional Dependent Child Exemption

For taxable years beginning after December 31, 1996, a taxpayer is permitted an additional $1,500 exemption for each child who qualifies under Section 151(c)(1)(B) of the Internal Revenue Code for taxable years prior to 2018. To qualify, the dependent child must be the taxpayer's son, stepson, daughter, stepdaughter, foster child, or child for whom the taxpayer is a legal guardian, and must be either (1) under age 19 at the end of the tax year, or (2) under age 24 at the end of the tax year and a full-time student at a qualified educational institution during at least five months of the taxable year. This $1,500 exemption is in addition to the $1,000 dependent exemption described above, bringing the total exemption for a qualifying child to $2,500.

Special Exemption for Age 65 or Over with Income Limitation

For taxable years beginning after December 31, 1996, if the taxpayer (or the taxpayer's spouse if filing a joint return) is age 65 or older at the end of the taxable year and has federal adjusted gross income of less than $40,000, the taxpayer is eligible for an additional $500 exemption for each additional amount allowable under Section 63(f)(1) of the Internal Revenue Code if that condition is met. This $500 exemption is in addition to the $1,000 age-65-or-over exemption described above. The $40,000 income threshold applies to the combined federal adjusted gross income of both spouses on a joint return.

First-Time Qualifying Child Exemption

Beginning with taxable years starting after December 31, 2022, if a taxpayer is claiming a child as a dependent for the first taxable year in which the additional dependent child exemption is allowable for that child, the taxpayer may claim $3,000 instead of the $1,500 additional dependent child exemption for one tax year only. The child must meet the same age and relationship requirements as the $1,500 additional dependent child exemption. This enhanced exemption is not permitted if the child could have been claimed for the $1,500 exemption in any previous year by any taxpayer, regardless of whether the exemption was actually claimed. Common situations where this exemption applies include newborn children, newly adopted children (provided the child did not previously qualify as a qualifying child for another taxpayer), and children of new Indiana residents who did not have Indiana-source income in the prior year.

Additional Adopted Child Exemption

A taxpayer who has adopted a child is permitted an additional $3,000 exemption if the child is claimed as a dependent and meets the same age and relationship requirements as the additional dependent child exemption (under age 19, or under age 24 and a full-time student for at least five months). The child must be a son, stepson, daughter, or stepdaughter of the taxpayer. This exemption is available only if the child is claimed as a dependent on the return filed on behalf of the adoptive parent. If a child is adopted by only one parent, the parent who did not adopt the child may not claim the additional adopted child exemption except on a joint return filed with a spouse who did adopt the child.

Source: Ind. Code § 6-3-1-3.5(a); Indiana DOR Information Bulletin #117 (January 2024)

Indiana operates a pay-as-you-go income tax system requiring individuals to make estimated tax payments throughout the year if their withholding does not cover their expected tax liability. Estimated tax payments apply to both state adjusted gross income tax and county adjusted gross income tax.

Threshold Requirement

Under IC 6-3-4-4.1(b), every individual who has adjusted gross income subject to Indiana tax and from which tax is not withheld must make a declaration of estimated tax for the taxable year. However, no declaration is required if the estimated tax can reasonably be expected to be less than one thousand dollars ($1,000). This $1,000 threshold applies to the combined total of state and county adjusted gross income tax liability not covered by withholding.

Payment Due Dates

IC 6-3-4-4.1(a) provides that any individual required by the Internal Revenue Code or by IC 6-3-4-4.1 to file estimated tax returns and make payments on account of estimated tax must file estimated tax returns and make payments "at the time or times and in the installments as provided by Section 6654 of the Internal Revenue Code." Indiana therefore follows the federal quarterly estimated tax payment schedule established under IRC § 6654. For calendar-year taxpayers, the four estimated tax installment payments are due:

• April 15 of the tax year
• June 15 of the tax year
• September 15 of the tax year
• January 15 of the following year

If a due date falls on a national or state holiday, Saturday, or Sunday, the payment is timely if made online or postmarked by the next business day. Taxpayers on a fiscal year should adjust the due dates to correspond to the months of the fiscal year.

Safe Harbor Rules to Avoid Underpayment Penalty

The Department of Revenue has stated that a taxpayer may owe an underpayment penalty if the taxpayer is required to make estimated tax payments and the total of the taxpayer's credits (including estimated tax payments) is less than 90% of the current year's tax due or 100% of the prior year's tax due. For taxpayers with higher federal adjusted gross income, the Department states that the safe harbor is 110% of the prior year's tax if federal adjusted gross income is more than $150,000 (single filers or married filing jointly) or more than $75,000 (married filing separately).

The statutory underpayment calculation incorporates the methodology of IRC § 6654, which establishes these same safe harbor thresholds at the federal level. A taxpayer who meets either safe harbor generally avoids the underpayment penalty even if the actual tax due at year-end exceeds the estimated payments made during the year.

Annualized Income Method

Individuals whose income is distributed unevenly throughout the year may use the annualized income installment method to avoid underpayment penalties. The Department of Revenue states that in situations where a taxpayer's income is distributed unevenly, the taxpayer can avoid the penalty by paying an annualized income installment amount, which allows the taxpayer to make reduced payments during periods when income is lower and larger payments when income is higher. Taxpayers using this method must complete Schedule IT-2210A to compute the annualized income installment amount.

Underpayment Penalty

IC 6-3-4-4.1(b) provides that in the case of an underpayment of estimated tax as provided in IRC § 6654, "there shall be added to the tax a penalty in an amount prescribed by IC 6-8.1-10-2.1(b)." The Department of Revenue assesses a penalty of 10% of the underpayment amount for each installment period. Taxpayers who owe an underpayment penalty must complete Schedule IT-2210 (Underpayment of Estimated Tax by Individuals) or IT-2210A (if using the annualized income method) when filing their annual return.

Making a large payment with the final installment or with the filing of the annual return does not relieve the taxpayer from any penalty for failure to make prior estimated payments in a timely manner during the year.

Payment Methods

Estimated tax payments may be made by:

• Online payment through INTIME (Indiana's Taxpayer Information Management Engine) at intime.dor.in.gov
• Preprinted estimated tax vouchers provided by tax preparation software or issued by the Department of Revenue after the first payment is received
• Form ES-40 (Estimated Tax Payment Voucher for Individuals) completed and mailed with payment

Source: Ind. Code § 6-3-4-4.1; Indiana DOR Estimated Payments; Indiana DOR Information Bulletin #3

Indiana maintains reciprocal income tax agreements with five states: Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. These agreements exempt certain wage income earned across state lines from taxation by the work state, allowing affected taxpayers to pay income tax only to their state of residence.

Scope of Reciprocity

Under 45 IAC 3.1-1-115, the reciprocity agreements provide that Indiana will not impose its adjusted gross income tax on salaries, wages, tips, and commissions earned by legal residents of the five reciprocal states who work in Indiana. Similarly, those states will not impose their individual income tax on salaries, wages, tips, and commissions earned by Indiana residents who work in those states.

Reciprocity applies only to salaries, wages, tips, and commissions received as an employee. The agreements do not cover other types of income. Under Indiana DOR Information Bulletin #28, income from sources other than salaries, wages, tips, and commissions—including business income, rental income, interest, dividends, capital gains, and pension and annuity income—remains subject to normal nonresident sourcing rules and is not covered by reciprocity. Similarly, 45 IAC 3.1-1-7 confirms that reciprocity applies to deferred compensation that consists of wages, but all income other than wages (such as pension, annuity, profit-sharing, and stock-option income) is not covered by the reciprocal agreements.

Indiana Residents Working in Reciprocal States

An Indiana resident who earns salaries, wages, tips, and commissions in Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin must report all such income on their Indiana return as if it were earned in Indiana. Under 45 IAC 3.1-1-76, Indiana residents may not claim a credit on the Indiana return for any taxes withheld by or paid to a reciprocal state in connection with salaries, wages, or commissions received from such states. If tax has been withheld by any of these states, the Indiana resident should file a claim for refund with the state that withheld the taxes.

To prevent withholding at the source, Indiana residents working in a reciprocal state should file the appropriate exemption certificate with their employer in the work state. The employer forms for each reciprocal state, as referenced in Indiana DOR guidance, are:

• Kentucky: Form 42A809 (Employee's Nonwithholding Application Certificate)
• Michigan: Form MI-W4 (employee writes "Reciprocal Agreement" and the state name on the exemption line)
• Ohio: Form IT-4NR (Employee's Nonwithholding Application)
• Pennsylvania: Form REV-419 (Employee's Nonwitholding Application Certificate)
• Wisconsin: Wisconsin withholding certificate indicating nonresident status and state of residence

Nonresidents of Indiana Working in Indiana

Employees who are legal residents of Kentucky, Michigan, Ohio, Pennsylvania, or Wisconsin and who work in Indiana must submit Form WH-47 (Certificate of Residence) to their Indiana employer to claim exemption from Indiana state adjusted gross income tax withholding. Under Information Bulletin #33, a qualified nonresident employee who works in Indiana is required to submit a properly completed Form WH-47 to the employer; this form identifies the employee's state of legal residence. The form is filed with and held by the employer; it is not sent to the Indiana Department of Revenue. The employee is responsible for notifying the Indiana employer of any change in legal residence.

Local Income Tax Exception

Indiana's reciprocity agreements cover only Indiana state adjusted gross income tax. The agreements do not exempt nonresident employees from Indiana county adjusted gross income tax (local income tax, or LIT). Under Information Bulletin #33, Indiana reciprocity agreements do not cover withholding requirements concerning Indiana Local Income Taxes, and employers are required to collect any applicable LITs from employees who are residents of reciprocal states in the same manner as residents of nonreciprocal states.

Information Bulletin #28 further provides that Indiana residents who paid local income taxes to a locality outside Indiana are allowed a credit against their Indiana county tax liability. This credit is allowable for local income taxes paid to a locality of another state even if the income is exempt from state-level taxation as a result of a reciprocity agreement. The credit for taxes paid to a locality outside Indiana must be supported by a separate calculation of the credit. If the taxpayer is required to file a return with the locality in another state, a copy of the return must be submitted with the claim for credit; withholding statements or other evidence of tax payment will be acceptable if no return is required to be filed with the locality outside the state.

County Tax Filing Requirement for Nonresidents

Under Information Bulletin #28, if a nonresident of one of the reciprocal agreement states has income from Indiana other than wages, salaries, tips, or commissions, the nonresident must file Form IT-40PNR (Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return). Additionally, Wisconsin Department of Revenue guidance notes that individuals who earn income that is not taxable to the State of Indiana because of the reciprocity agreement may still be subject to an Indiana county income tax on that income, and in such cases the individual must file an Indiana income tax return; however, Indiana DOR guidance does not explicitly address this scenario in the cited bulletins.

Source: 45 IAC 3.1-1-115; 45 IAC 3.1-1-76; 45 IAC 3.1-1-7; Indiana DOR Information Bulletin #28; Indiana DOR Information Bulletin #33; Form WH-47, Certificate of Residence

Indiana authorizes all 92 counties to impose a local income tax (LIT) on adjusted gross income, which is collected and administered in addition to the state adjusted gross income tax. As of 2026, all Indiana counties have adopted a local income tax. County tax rates vary by county and are imposed on top of the state rate.

Basis of Tax Liability: Residence vs. Work Location

County income tax liability is determined by an individual's county of residence or, for nonresidents of Indiana, the county of principal business or employment. The determination is made as of January 1 of the calendar year in which the individual's taxable year commences and is fixed for the entire tax year. Any change in an individual's county of residence or principal place of employment or business during the year does not affect the county for which the individual is liable for local income tax.

Residents

Residents of an Indiana county are subject to that county's local income tax at the tax rate imposed by that county on their entire adjusted gross income, regardless of where the income is earned. Under IC 6-3.6-8-3, the county of residence is determined using a four-tier hierarchy:

1. The county in which the individual maintains a home, if the individual maintains only one home in Indiana;
2. If subdivision (1) does not apply, the county where the individual is registered to vote;
3. If subdivisions (1) or (2) do not apply, the county where the individual registers the individual's personal automobile; or
4. If subdivisions (1), (2), or (3) do not apply, the county where the individual spent the majority of the individual's time in Indiana during the taxable year in question.

Nonresidents with Indiana Employment or Business

If an individual resides outside the state of Indiana but the individual's principal place of business or employment is in an Indiana adopting county, the adjusted gross income derived from the Indiana adopting county is subject to county tax at the same rate as resident taxpayers. Indiana's reciprocity agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin cover only Indiana state adjusted gross income tax; the agreements do not exempt nonresident employees from Indiana county adjusted gross income tax (local income tax).

In addition to compensation or self-employment income, an individual is subject to local income tax on any other income derived from the county of principal business or employment. For 2023 and earlier, if a nonresident individual reports income only from primary employment (as opposed to secondary or part-time employment), the reporting by the individual is simplified under certain conditions; however, the full county tax liability remains.

Where County Tax Rates Are Published

County income tax rates may be adjusted in January and October of each year. The Indiana Department of Revenue publishes the current county income tax rate chart for withholding purposes in Departmental Notice #1, which is updated semiannually to reflect rate changes. Departmental Notice #1 contains the official county tax rate for each of Indiana's 92 counties and is the authoritative source employers use to determine withholding rates.

In addition, the Department maintains comprehensive records of county tax rates dating back to 2007 on the Individual Income County Tax Rates by Year page of the DOR website. Each county has one county income tax rate; the rate is the same for residents and nonresidents with principal employment in that county.

Historical Structure: CAGIT, COIT, and CEDIT

Prior to January 1, 2017, Indiana counties adopted local income taxes under three separate statutory frameworks: the County Adjusted Gross Income Tax (CAGIT), enacted in 1973; the County Option Income Tax (COIT), enacted in 1984; and the County Economic Development Income Tax (CEDIT or EDIT), enacted in 1987. These three taxes were collected based on the same tax base as state adjusted gross income but differed in the use local governments could make of the revenue:

• CAGIT revenue was distributed to all local governments, including school corporations. CAGIT rates were adopted by the county council at rates of 0.5%, 0.75%, or 1%, with almost all counties using the 1% rate.
• COIT revenue was distributed to all civil (non-school) governments and could be added to local budgets and spent for general purposes.
• CEDIT revenue was distributed to counties, cities, and towns only, and could be spent only on public capital projects or economic development projects. CEDIT rates generally could be adopted at rates up to 0.5%, but combined CAGIT and CEDIT rates could not exceed 1.25%, and combined COIT and CEDIT rates could not exceed 1%.

Counties could adopt CAGIT or COIT (but not both), and could adopt CEDIT in addition to or instead of CAGIT or COIT.

Current Structure: Local Income Tax (LIT) under IC 6-3.6

Effective January 1, 2017, Indiana repealed the CAGIT, COIT, and CEDIT statutes and replaced them with a unified local income tax structure under IC 6-3.6. A reference in a statute or rule to a statute that was repealed and replaced in the same or a different form in IC 6-3.6 is treated after December 31, 2016, as a reference to the new provision. The current local income tax structure has three rate components:

1. Expenditure rate — revenue may be added to local budgets for general purposes;
2. Property tax relief rate — revenue must be used to reduce property taxes; and
3. Special purpose rate — revenue may be used only for purposes specified in statute (such as public safety, economic development, or capital projects).

Each county's total local income tax rate is the sum of the rates adopted under these three components. The adopting body for a county is generally either the county fiscal body (the county council or county commissioners) or the local income tax council, depending on which taxes the county had in effect on January 1, 2015. A local income tax council is established for each county and consists of the fiscal body of the county and the fiscal body of each city or town that lies either partially or entirely within that county.

Withholding and Administration on Individual Returns

Employers must withhold county income tax from employee wages in addition to state adjusted gross income tax. The employee completes Form WH-4 (Employee's Withholding Exemption and County Status Certificate) to establish, for withholding purposes, the taxpayer's county of residence or county of principal business or employment. The employee must enter the Indiana county of residence and county of principal employment as of January 1 of the current year. If the employee neither lived nor worked in Indiana on January 1 of the current year, the employee enters "not applicable" on the line(s). If the employee moves to or works in another county after January 1, the employee's county status does not change until the next calendar year, though the employee may request a change for the next calendar year by checking the appropriate box on Form WH-4.

On the individual income tax return, Indiana residents report all adjusted gross income and compute county tax based on the county of residence as of January 1. Nonresidents with Indiana-source income file Form IT-40PNR (Part-Year or Full-Year Nonresident Individual Income Tax Return) and compute county tax based on the county of principal business or employment as of January 1, using the county tax rate applicable to that county.

County income tax is included in the estimated tax payment requirements under IC 6-3-4-4.1. An individual must make a declaration of estimated tax if the combined estimated state and county adjusted gross income tax liability not covered by withholding can reasonably be expected to be $1,000 or more.

Source: Indiana DOR Rates, Fees & Penalties; Indiana DOR Individual Income County Tax Rates by Year; Indiana DOR Information Bulletin #32; Indiana DOR Departmental Notice DN01; Indiana DOR Information Bulletin #33; Form WH-4 Instructions

Indiana authorizes all 92 counties to impose a local income tax (LIT), and as of 2026, all Indiana counties have adopted a local income tax. Each county sets its own rate. County income tax rates vary significantly across the state and may be adjusted twice per year—in January and in October.

Official Rate Publications

The Indiana Department of Revenue publishes county income tax rates in two primary sources, depending on the user's purpose:

For employers and withholding agents: The Department publishes Departmental Notice #1 (DN01), titled "How to Compute Withholding for State and County Income Tax." DN01 contains the current county income tax rate chart for withholding purposes and is updated when rates change. The notice lists all 92 counties and their respective rates effective for the current withholding period. DN01 states: "An asterisk (*) beside a county name indicates the rate has changed since Departmental Notice #1 was published on Oct. 1, 2025." Departmental Notice #1 is available on the DOR website at https://www.in.gov/dor/files/dn01.pdf and is the authoritative source for determining which county rate to withhold.

For individual taxpayers filing returns: The current-year IT-40 Income Tax Instruction Booklet contains the most recent county income tax rates for individual filers. The county tax rate chart is included in the annual instruction booklet published by the Department and is used by individuals completing Schedule CT-40 (County Tax Schedule for Indiana Residents) or the equivalent section of Form IT-40PNR (Part-Year or Full-Year Nonresident Individual Income Tax Return). The Department's Rates, Fees & Penalties page states that "the current year IT-40 Income Tax Instruction Booklets contain the most recent rates for individual filers," and that "historical rates for residents are available in prior year IT-40 Income Tax Instruction Booklets."

Rate Adjustment Timing

County income tax rates may be adjusted in January and October of each year. The Department's Rates, Fees & Penalties page states: "County income tax rates may be adjusted in January and October. Departmental Notice #1 contains the most recent county income tax rate chart for withholding." Local income tax rates are determined by each county's fiscal body or local income tax council and provided to the Department of Revenue for review regarding compliance with Indiana law. When a county changes its rate, the Department publishes an updated version of Departmental Notice #1 and marks the changed counties with an asterisk in the rate chart.

Rate Structure

Each county has one county income tax rate that applies uniformly to residents and nonresidents with Indiana-source income attributable to that county. Departmental Notice #1 explains that both the county of residence and the county of principal business or employment of an individual are determined on January 1 of the calendar year in which the individual's taxable year begins. The rate applies to the taxpayer's adjusted gross income (after personal exemptions and other deductions) and is collected in addition to the state adjusted gross income tax rate.

County income tax rates vary by county. The specific rate for each of Indiana's 92 counties is published in Departmental Notice #1 (for withholding purposes) and in the annual IT-40 Income Tax Instruction Booklet (for individual filers preparing returns). Practitioners and taxpayers should consult the most recent version of these publications to determine the applicable county rate, as rates may change in January or October of any year.

Source: Indiana DOR Rates, Fees & Penalties; Indiana DOR Departmental Notice #1

Indiana imposes adjusted gross income tax on nonresident individuals on the portion of their income "derived from sources within Indiana." Under IC 6-3-2-2(a), the statute defines this term for nonresident persons to "mean and include: (1) income from real or tangible personal property located in this state; (2) income from doing business in this state; (3) income from a trade or profession conducted in this state; (4) compensation for labor or services rendered within this state; and (5) income from stocks, bonds, notes, bank deposits, patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other intangible personal property to the extent that the income is apportioned to Indiana under this section or if the income is allocated to Indiana or considered to be derived from sources within Indiana under this section."

The statute further provides that "income derived from Indiana shall be taxable to the fullest extent permitted by the Constitution of the United States and federal law, regardless of whether the taxpayer has a physical presence in Indiana."

Allocation vs. Apportionment Framework

Indiana uses two distinct methods to determine the amount of Indiana-source income: allocation and apportionment. Under Indiana DOR Information Bulletin #39, income directly connected to Indiana sources must be allocated to Indiana and reported in full on the nonresident return. Income from a trade or business carried on both within and outside Indiana must be apportioned to Indiana using a single-factor sales formula.

Income Allocated to Indiana (100% Taxable)

The following categories of income must be allocated to Indiana in their entirety:

Compensation for labor or services performed in Indiana. Wages, salaries, tips, commissions, and other compensation for labor or services are Indiana-source income to the extent the services are performed within Indiana, regardless of where the employer is located or where the employee resides. Indiana's reciprocity agreements with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin exempt wages earned by residents of those states from Indiana state adjusted gross income tax (though Indiana county income tax still applies to such workers).

Income from rental property located in Indiana. Rental income from real property situated in Indiana—including residential, commercial, and agricultural rental property—is allocated to Indiana.

Income from a trade, business, or profession conducted entirely within Indiana. A nonresident individual who operates a business or profession solely within Indiana must allocate all of that business or professional income to Indiana. Information Bulletin #39 states that if the trade or business is carried on both within and outside Indiana, the business income must be apportioned under the single-factor sales formula (discussed below).

Gain from the sale of Indiana real property or tangible personal property located in Indiana. Income from the sale, exchange, or disposition of real property or tangible personal property physically located in Indiana is Indiana-source income. This category includes sales of rental property, farmland, buildings, equipment, and inventory located in Indiana.

Income from intangibles derived from an Indiana business operation. Intangible income (dividends, interest, royalties) is generally not Indiana-source income for nonresidents. However, Information Bulletin #39 states that such income becomes Indiana-source "if the income is derived from an Indiana business operation." For example, a nonresident sole proprietor or partner who earns interest or dividend income as part of operating an Indiana business may have Indiana-source investment income to the extent the income arises from the Indiana business operation.

Gambling winnings from Indiana facilities. Information Bulletin #39 lists "winnings from Indiana's riverboats, casinos, and lotteries" as Indiana-source income that must be allocated to Indiana. These winnings are taxable regardless of the nonresident's state of residence.

Pass-through entity income. Nonresident partners, LLC members, and S corporation shareholders who receive income from a pass-through entity that does business in Indiana must report their distributive share of Indiana-source income. Under IC 6-3-2-2(a), "income from a pass through entity shall be characterized in a manner consistent with the income's characterization for federal income tax purposes and shall be considered Indiana source income as if the person, corporation, or pass through entity that received the income had directly engaged in the income producing activity." Information Bulletin #39 states that nonresident partners of a partnership, nonresident members of an LLC treated as a partnership or S corporation, and nonresident shareholders of an S corporation where the pass-through entity does business in Indiana are required to be part of a composite return filed by the pass-through entity for all nonresident partners, members, or shareholders, unless the nonresident elects to file an individual Indiana return.

Income Apportioned to Indiana (Percentage Based on Sales Factor)

A nonresident individual who has business income from a trade or business carried on both within and outside Indiana must apportion that business income using Indiana's single-factor sales formula. Under IC 6-3-2-2(b), business income derived from sources within Indiana is determined by multiplying the total business income by a sales factor.

Information Bulletin #39 explains that the sales factor is determined by dividing total sales made in Indiana during the taxable year by total sales made everywhere during the taxable year, expressed as a percentage. Indiana sales include sales from outside Indiana delivered or shipped to a purchaser within Indiana (excluding sales delivered or shipped from within Indiana to the U.S. government) and other receipts sourced to Indiana under the statutory sales-factor rules. The apportionment calculation is reported on an apportionment schedule on Form IT-40PNR.

Income Generally NOT Subject to Indiana Tax for Nonresidents

Certain categories of income are not Indiana-source income for nonresidents unless the income is connected to an Indiana trade or business or otherwise apportioned to Indiana under the statutory rules:

• Interest and dividends from personal investments, unless derived from an Indiana business operation;
• Pension and annuity income;
• Capital gains from the sale of intangible personal property (such as stocks, bonds, and business goodwill), unless apportioned to Indiana as part of business income from a multistate trade or business;
• Social Security benefits; and
• Unemployment compensation.

Filing Requirement

Under IC 6-3-4-1(2), "every nonresident individual having for the taxable year any gross income from sources within the state of Indiana" must file a return (Form IT-40PNR). The statute contains a narrow exception for a "team member" (as defined in IC 6-3-2-2.7, covering certain athletes and entertainers performing in Indiana) who is covered by a composite return filed under IC 6-3-2-2.7. The statute does not specify a dollar threshold below which a nonresident may decline to file; the language "any gross income" suggests that any amount of Indiana-source income triggers the filing requirement, subject to the team-member exception.

Source: Ind. Code § 6-3-2-2; Ind. Code § 6-3-4-1; Indiana DOR Information Bulletin #39