Tax season can be a pain, even if we know we have a big return on the way. And even more so when you hear about those folks that live in “no state income tax†locales. So how do the Hoosier State’s tax laws compare to those in other states? And where do the federal income tax statutes come into play? This is a brief summary of Indiana personal income tax laws.
Income Tax in Indiana
The majority of state income tax collected from residents goes to help pay for roads, education, police, and other vital state services. Indiana personal income tax laws levy a 3.4 percent rate on all taxable income. However, some corporations, partnerships, and trusts may have to pay additional taxes on their business income. The main provisions of Indiana's personal income tax laws are detailed in the following chart.
| Code Section | 6-3-2-1, et seq. |
| Who is Required to File | Resident individuals, estates and trusts, and nonresidents on adjusted gross income derived from Indiana sources; Partnerships are not taxable |
| Rate | 3.4% of adjusted gross income; general rate for all resident taxpayers; additional local taxes may be required |
| Federal Income Tax Deductible | No |
| Federal Income Used as Basis | Yes |
Indiana’s income tax codes overlap with federal tax laws as well as consumer tax laws. Under basic tax law, the state and the federal government may tax both unearned and earned income. Earned income refers mainly to your employment compensation: salary, wages, tips, commissions, bonuses, unemployment benefits, and sick pay. Unearned income comes from things like interest, dividends, profits from asset sales, business and farm income, and rent income.
The Internal Revenue Service (IRS) handles federal taxation, which is collected according to the Internal Revenue Code (IRC). You can find IRS forms and publications online. Many state income tax codes are similar to the federal code, but there may be important distinctions under Indiana law you should understand before paying your taxes. For those who would like help filing their state and federal income tax returns, many states offer taxpayer assistance programs, and make their state tax forms available online.
Indiana Personal Income Tax Laws: Related Resources
Navigating the tax code can seem impossible, and the penalties for filing errors could be costly. If you would like legal assistance with your tax case, you can also contact an Indiana tax law attorney in your area. You can also visit FindLaw’s Tax Law center for additional articles and resources.
