Tax Laws in Indiana (2026): Big Changes Hoosiers Can’t Ignore

Most people don’t think about taxes until they have to. Then it’s a scramble. But in Indiana, 2026 is actually a great year to pay attention. Why? Because the state just made some of the biggest tax changes in over a decade. And several of them could put real money back in your pocket.

Let’s break it all down, step by step.

What Are Indiana’s Main Taxes?

Indiana collects a few different types of taxes. Each one affects you in a different way.

The big ones are income tax, sales tax, and property tax. There’s also county income tax, which is separate from state income tax. Every single county in Indiana charges it. Yes, all 92 of them.

Sound complicated? It’s actually not too bad once you see how each piece works.

Indiana Income Tax

The State Rate Just Dropped Again

Here’s some good news. Indiana uses a flat income tax. That means everyone pays the same percentage, no matter how much you earn.

For 2026, that rate is 2.95%. It was 3% in 2025. It will drop again to 2.9% in 2027. This is part of a plan that Indiana lawmakers passed a few years ago.

Okay, so what does that mean for your wallet? If you earn $50,000 a year, you’ll pay about $1,475 in state income tax. At the old 3% rate, that was $1,500. That’s a $25 difference. Not huge on its own, but it adds up across a whole state.

Wondering how this compares to other states? Indiana is now moving toward one of the lowest income tax rates in the country.

You Also Pay County Income Tax

Here’s the part most people miss. On top of state income tax, you owe county income tax too. The rate depends on where you live or work.

County rates across Indiana range from about 0.5% to 2.9%. Six counties actually raised their rates at the start of 2026. Those counties are Carroll, and five others that updated their withholding rates effective January 1, 2026.

If you work in a different county than you live in, you generally pay the rate of whichever county applies to your situation. Your employer takes this out of your paycheck automatically.

Social Security and Military Pay Are Tax-Free

This one’s worth knowing. Indiana does not tax Social Security income. If you receive Social Security benefits, you do not owe Indiana state income tax on that money.

Military retirement pay is also fully exempt in Indiana. Veterans who receive military retirement benefits can deduct the full amount from their Indiana income. That’s a significant savings for a lot of Hoosier families.

What About Filing?

Indiana’s standard filing deadline is April 15. You file Form IT-40 if you lived in Indiana all year. You file Form IT-40PNR if you lived in Indiana for only part of the year.

The state has an online system called INTIME. You can file your taxes, make payments, and manage your account all in one place. Pretty straightforward.

Indiana Sales Tax

The Rate Is 7%

Indiana’s sales tax rate is 7%. That’s a flat statewide rate. No matter which city or county you shop in, the rate is the same.

This puts Indiana among the higher sales tax states in the country. In fact, only California has a higher base state sales tax rate.

One important thing to know: Indiana counties do not add their own sales tax on top of the state rate. You won’t see different rates depending on the city. That makes things simpler.

What’s Taxable and What’s Not?

Most physical goods you buy are taxable. Clothing, electronics, furniture, household items. All of that gets taxed at 7%.

Groceries are generally exempt from sales tax in Indiana. That’s a meaningful break for families. Prescription drugs are also exempt.

Services are mostly not taxable in Indiana. If you hire someone to cut your hair or fix your car, that service itself is typically not subject to sales tax. But there are exceptions, so it’s worth checking for specific services.

Use Tax: The Rule Most People Don’t Know

Here’s where it gets interesting. If you buy something online and the seller doesn’t charge you Indiana sales tax, you technically still owe it. It’s called use tax. The rate is the same 7%.

Most people don’t pay this. But technically, if you bought something from an out-of-state retailer and didn’t pay sales tax, Indiana expects you to report and pay the use tax yourself. Keep that in mind if you do a lot of online shopping.

Food and Beverage Tax

Some counties charge an additional food and beverage tax. This is separate from sales tax. It applies to food and drinks sold at restaurants and similar establishments.

If a county has this tax, the rate is generally 1%. So your restaurant bill might include both the 7% sales tax and the local food and beverage tax. Check what applies in your county.

Indiana Property Tax

A Massive Overhaul in 2026

Hold on, this part is important. Indiana just made its biggest property tax changes in over a decade. Senate Enrolled Act 1 was signed into law in 2025, and its effects are now showing up in your 2026 property tax bills.

Two-thirds of Indiana homeowners are expected to see lower property tax bills in 2026 compared to 2025. That’s a big deal. Here’s what changed.

The New Homestead Credit

Every homeowner with a homestead designation now gets a new credit. This credit reduces your property tax bill by 10%. The maximum savings is $300 per year.

A credit is different from a deduction. A deduction lowers the value of your home before taxes are calculated. A credit comes off your actual bill. Think of it like a coupon that’s applied at the very end. It’s more powerful than it sounds.

This credit applies automatically. You don’t need to do anything extra if you already have your homestead deduction filed.

The Homestead Deduction Is Growing

Indiana has a standard homestead deduction and a supplemental homestead deduction. These lower the taxable value of your home before your bill is calculated.

In 2026, the supplemental deduction increased to 40% of your home’s remaining value after the standard deduction. That’s up from 37.5% in 2025. This will keep growing each year until 2031, when it will eventually cover two-thirds of your home’s value.

Personally, I think this is one of the most meaningful long-term changes for homeowners. It slowly but surely reduces how much of your home’s value can be taxed.

The Property Tax Cap

Indiana has a constitutional cap on property taxes. Your property tax on your primary home cannot exceed 1% of your home’s assessed value.

If your home is assessed at $200,000, your property tax bill cannot exceed $2,000 per year. That cap is law. It doesn’t matter what local governments decide. The cap holds.

Seniors, Disabled Homeowners, and Veterans

Big changes here too. The old Over-65 deduction is now an Over-65 Credit. The credit is worth $150 off your actual tax bill.

The income limit to qualify was expanded. Single filers can earn up to $60,000. Joint filers can earn up to $70,000. That’s more generous than the old rules.

There’s also a Circuit Breaker Credit for seniors. This prevents your property tax from increasing by more than 2% compared to the prior year. So if you’re on a fixed income, your tax bill can’t spike suddenly.

Disabled homeowners can receive a $125 credit. The income limit was actually removed for this one. Any qualifying disabled homeowner can get it regardless of income.

Veterans with disabilities may also qualify for additional property tax benefits. Some qualifying veterans are fully exempt from property taxes. Contact your county auditor to find out what applies to your situation.

Penalties for Not Paying or Filing

Let’s talk about what happens if you miss deadlines or don’t pay. The Indiana Department of Revenue takes this seriously.

If you fail to pay your tax on time, you face a penalty of 10% of the unpaid amount or $5, whichever is greater. If you don’t file a return at all, the penalty jumps to 20% of what you owe. And if you file a fraudulent return, the penalty is 100%. That’s your entire tax bill as a fine, on top of what you already owe.

For sales tax late filing, the penalty can be up to 20% with a minimum of $5. Even if you had zero sales in a period, you must file a $0 return. Missing that filing still triggers a penalty.

Tax Amnesty Program Coming in 2026

Here’s a bright spot for people who have fallen behind. Indiana is running a tax amnesty program this year. It runs from July 15 through September 15, 2026.

This program lets people with unpaid tax liabilities get caught up with reduced or waived penalties. If you have back taxes you’ve been avoiding, this window is your chance to deal with them without the full penalty burden.

The program covers unpaid liabilities for tax periods ending before January 1, 2024. Check the Indiana Department of Revenue website for full details as the program gets closer.

Special Situations Worth Knowing

Living Near the Border

Indiana has tax reciprocity agreements with several neighboring states. If you live in Indiana but work in Ohio, Kentucky, Michigan, Wisconsin, or Pennsylvania, you may not owe income tax in both states. You generally just pay your home state’s taxes.

This is a big deal for people who commute across state lines. Make sure your employer knows which state you live in so they withhold correctly.

Small Businesses and Personal Property Tax

Good news for small business owners. Starting in 2026, any business with less than $1 million in personal property is fully exempt from the business personal property tax.

This is a real savings for small shops, contractors, and self-employed Hoosiers who own equipment, tools, or inventory. You’re not alone if you didn’t even know this tax existed. Most people don’t realize how strict these local business tax rules are.

Gambling Winnings

If you win money gambling in Indiana, that income is taxable. But the threshold for withholding just changed. Starting in 2026, withholding on gambling winnings kicks in at $2,000 or more. It was $1,200 before. So smaller wins won’t have tax withheld automatically. But you still owe the tax when you file your return.

How to Stay Compliant

You’re not alone if this feels like a lot to track. Don’t worry, we’ll break it down to the basics.

File your state income tax by April 15. Use INTIME at in.gov/dor if you want to file online. It handles most individual and business tax types.

Make sure your homestead deduction is filed with your county auditor. If you recently bought a home, you need to file for it. It doesn’t happen automatically for new owners.

If you’re a senior, disabled, or a veteran, check with your county auditor about the new credits available in 2026. Some applications needed to be filed by January 15, 2026, but contact your auditor to see if you can still qualify going forward.

For businesses, make sure you’re registered with Indiana’s INTIME system. Sales tax, food and beverage tax, and other special taxes all need to be filed and paid on time to avoid penalties.

When in doubt, talk to a tax professional who knows Indiana law. The savings from the new credits and deductions are real, and a good advisor can help you claim every dollar you’re owed.

Frequently Asked Questions

Does Indiana have a state income tax? Yes. Indiana has a flat state income tax rate of 2.95% for 2026. Every county also charges its own income tax on top of that.

What is Indiana’s sales tax rate? Indiana’s sales tax rate is 7% statewide. Counties do not add extra sales tax, so the rate is the same everywhere in the state.

Are groceries taxed in Indiana? No. Groceries are generally exempt from Indiana’s 7% sales tax. Prescription drugs are also exempt.

How do I get the new homestead property tax credit? If you already have a homestead deduction on file with your county, you get the 10% credit automatically on your 2026 bill. No extra application is needed.

Does Indiana tax Social Security income? No. Indiana does not tax Social Security benefits. Military retirement pay is also fully exempt from Indiana state income tax.

What happens if I don’t file my Indiana taxes on time? You face a penalty of 20% of what you owe if the state has to prepare your return, or 10% of unpaid taxes if you file but don’t pay. File on time even if you can’t pay in full.

Is there help available if I owe back taxes to Indiana? Yes. Indiana’s 2026 tax amnesty program runs from July 15 to September 15. It offers reduced penalties for people who get caught up on past-due taxes from before January 1, 2024.

Final Thoughts

Here’s the bottom line. Indiana is actually cutting taxes in 2026, not raising them. Income taxes are down. Property tax relief is here. And there are new credits for seniors, disabled homeowners, and veterans that are more generous than ever before.

Most people assume tax laws only change when they hurt you. Sometimes the changes go the other way. 2026 is one of those times for Indiana.

Now you know the basics. File on time, claim every credit you qualify for, and when in doubt, talk to a professional. You’ve got this.

References

1. Indiana Department of Revenue: Rates, Fees & Penalties — Official state income tax, sales tax, and penalty rates
2. Indiana Department of Revenue: 2026 Tax Chapter — Full guidance document on 2026 filing year changes
3. Tax Foundation: 2026 State Tax Changes — National overview of 2026 state tax changes including Indiana
4. Indiana Senate Republicans: SB 1 Property Tax Reform — Full breakdown of Senate Enrolled Act 1 and its property tax savings
5. AARP Property Tax Aide: Indiana — Senior property tax credit information and application guidance
6. Purdue Extension: Property Tax Reform Explained — Clear breakdown of how the homestead deduction changes phase in
7. RSM US: Indiana Federal Tax Conformity — Business tax changes including Senate Bill 243 and amnesty program details