What Changes in Your Paycheck in Indiana
Your paycheck in Indiana shows an Indiana state income tax line item at a flat 3.15% rate—the same percentage whether you earn $1 or $1. For a $1 salary, that's ~ $1 annually (~ $1 per biweekly paycheck). Indiana paychecks only show state and federal tax deductions—no local income tax line items. The flat rate means your state tax increases linearly with income, unlike progressive states where tax increases accelerate with higher brackets Retirees see no state tax on retirement income distributions, making Indiana attractive for those relying on retirement savings. However, Indiana's high 7% sales tax means you'll pay more at the point of sale than in states with lower sales taxes.
Example State Tax in Indiana
What you'll pay in Indiana state income tax at different salary levels (single filer, no deductions):
| Gross Salary | State Tax (Year) | Effective Rate |
|---|---|---|
| $50,000 | $1,575 | 3.1% |
| $75,000 | $2,363 | 3.1% |
| $100,000 | $3,150 | 3.1% |
| $150,000 | $4,725 | 3.1% |
Use the calculator above to see your exact take-home pay with your filing status and deductions.
Indiana Income Tax Rate
3.15% flat rate
Everyone pays 3.15% of taxable income, regardless of income level or filing status.
Understanding Indiana Taxes
Who Benefits
Indiana works well for high earners who benefit from the flat rate structure and have modest spending. In states with progressive brackets, someone earning $1 might pay 6%-8% effective state tax. In Indiana, that same person pays a flat 3.15%, resulting in lower total income tax. The low 3.15% rate makes Indiana attractive for all income levels compared to higher flat-tax states. Retirees also benefit from exemptions on Social Security and most retirement income, making Indiana attractive for those relying on retirement savings Big spenders benefit less due to the high 7% sales tax.
Who May Not Benefit
Indiana is relatively favorable for most income levels due to its low flat rate (3.15%), but lower-income workers and big spenders might face a higher total tax burden due to the high 7% state sales tax. A $1 earner who spends $1 annually on taxable goods might pay $1 in income tax plus $1 in sales tax ($1 total, 9.2% of income), which could exceed what they'd pay in progressive states with low brackets. If you're a big spender, the high sales tax can offset the advantage of the low income tax. However, for savers and higher earners with modest spending, Indiana's 3.15% income tax is very competitive.
Key Facts That Affect Your Take-Home Pay
- Indiana uses a flat 3.15% income tax rate for all income levels and filing statuses—unlike federal taxes or states with graduated brackets, your Indiana tax percentage stays the same whether you earn $1 or $1. This flat rate is one of the lowest flat tax rates in the nation, making Indiana attractive for all income levels.
- Indiana's flat tax rate means everyone pays the same 3.15% rate regardless of income level, creating a simple but potentially regressive system where lower earners pay a larger percentage of their take-home pay toward state tax than higher earners. However, the 3.15% rate is lower than most flat-tax states like Illinois (4.95%) or Massachusetts (5.0%).
- Indiana does not impose income taxes beyond the state rate, ensuring the same deductions apply throughout the state. All Indiana residents have the same income tax burden—the flat 3.15% state rate.
Common Mistakes People Make
Misconception: 'Flat tax means low tax.' Indiana's 3.15% flat rate is actually one of the lowest flat tax rates—lower than Illinois (4.95%), Massachusetts (5.0%), and comparable to or lower than most progressive states' effective rates for high earners. For someone earning $1, that 3.15% is $1, which is lower than most states. However, Indiana makes up for the low income tax with a high 7% state sales tax, so your total tax burden depends on both income and spending patterns.
Misconception: 'No local taxes means Indiana is cheaper than other states.' While Indiana avoids local income tax complications, the flat 3.15% income tax combined with high sales taxes (7% state rate, one of the highest in the nation) and property taxes can create a different tax burden profile. A big spender in Indiana might pay more in sales tax than they'd pay in income tax in some other states. Factor in both income tax and spending patterns when comparing Indiana to other states.
Misconception: 'Everyone pays the same percentage, so it's fair.' While everyone pays the same 3.15% rate in Indiana, the economic impact is different. 3.15% of a $1 salary ($1) represents a larger share of disposable income than 3.15% of $1 ($1). Flat taxes are proportionally equal, but not necessarily equitable in terms of real-world impact on people's financial lives—lower earners pay a larger percentage of their ability to cover necessities Additionally, Indiana's high 7% sales tax disproportionately affects lower earners who spend a larger percentage of income on taxable goods.
One Thing to Know
Indiana's 3.15% income tax is one of the lowest flat rates in the nation, but the state compensates with a 7% sales tax—one of the highest state sales tax rates. Big spenders end up paying more in total taxes than they'd pay in states with higher income tax but lower sales tax, which surprises people who move to Indiana expecting low overall taxes.
Important Notes
These calculations are estimates based on current tax law. Your actual take-home pay varies based on:
- Pre-tax deductions (401(k), health insurance, HSA, etc.)
- Your W-4 withholding elections
- Additional income or deductions at tax time
- Individual circumstances and tax situations
Tax rates are subject to change. Federal and state tax laws may be updated annually. This is not tax advice. For personalized help, consult a tax professional familiar with Indiana tax laws.