As in all other states in the United States, in Indiana, we have to pay state income taxes. For this state, a flat income tax is used so that we will pay the same tax rate regardless of our income. For this reason, it is important to know the Indiana income tax rate to know how much we will pay.
What is the Indiana personal income tax rate?
As we already mentioned, all residents of Indiana will have to pay the same tax rate, regardless of income or if we are married and filing jointly. This tax rate will be 3.23% on the income we earn.
In Indiana, we will not encounter standard deductions to claim on the state tax return. However, some personal exemptions can help us reduce our acquired tax liability.
Single taxpayers can claim up to $1,000, while married households can receive an exemption of $2,000. For dependents, there is also an option of $1,000 for each qualifying family member.
Who must file Indiana state income tax returns?
All Indiana residents whose income exceeds the exemptions must file a tax return. The same applies if we lived there for part of the year and earned income there.
If we earned money from a business based in Indiana, we must also file a tax return. On the other hand, Ohio, Kentucky, Wisconsin, or Michigan residents who earn wages only in Indiana will have to file Form IT-40RNR.
A state income tax return must also be completed if businesses are headquartered in Indiana. In these cases, the maximum corporate tax rate will be 5.5%.
Indiana has the highest sales tax rate in the nation. This rate will be 7%, placing Indiana second in the national rankings.
Indiana’s specific state tax rates
In Indiana, specific tax rates will be levied on certain items such as gasoline. In these cases, a tax of 53.65 cents per gallon is applied, making it one of the most expensive states in this regard.
On the other hand, the cigarette tax is $2.98 for a pack of 20 cigarettes, which is a considerably high tax. On the other hand, Indiana will always facilitate all tax credits and forms through the Indiana Department of Revenue on its website.
There we will also be able to file our taxes online and make installment payments of our tax liability much more efficiently.
What deductions apply to income taxes for Indiana?
Among the deductions that apply for income taxes, we find:
Taxpayers can deduct up to $3,000 of the rent they paid for their Indiana residence. This deduction will be valid for permanent residence, so summer, vacation, and student housing are not eligible. On the other hand, the rent cannot be deducted if the government owns the home, a cooperative, or a non-profit organization.
If we own a home in Indiana, we may be able to deduct up to $2,500 of our residential property taxes.
Private school or home schooling
For dependent children enrolled in private school or home schooling, up to $1,000 per child may be deducted from the Indiana income tax return.
If we are unemployed, we may be able to tax only a portion of unemployment compensation, which will allow us to pay less tax. We must include Form 1099G to claim this deduction.
Those who retire due to a disability before December 31 of the tax year can deduct a portion of their disability payments. In these cases, it is important to be totally and permanently disabled for a maximum deduction of $5,200 to apply.
Income Tax Credits
There are different options to consider when applying for income tax credits, among which are:
Indiana Earned Income Tax Credit
All taxpayers who claim an earned income tax credit can also claim the EIC. The limits for claiming this credit will be:
- Less than $15,900 if no children live at home.
- If one child lives at home, the income must be less than $42,100.
- If more than two children live at home, it must be less than $47,900.
In these cases, the dependents must be under the age of 19, or if they are students, they must be under the age of 24.
If we adopt a child and claim an adoption credit on our federal tax return, we may also claim a credit on our Indiana tax return.
Up to 10% of the allowable federal credit per child or $1,000 per child may be claimed.
Public School Educator Expenses
For those working in Indiana K-12 public schools, a credit may be claimed for school supplies expenses. It will be a maximum of $100, which can be increased to $200 if married filing jointly and both spouses qualify.
Unified Tax Credit for Seniors
For those over age 65 or older at the end of the tax year, a credit may be claimed if income is less than $10,000. This credit ranges from $40 to $140, and the second page of Form SC-40 should be used to calculate it.