Indiana Income Tax Rate
2.95% flat rate
Everyone pays 2.95% of taxable income, regardless of income level or filing status.
What People Get Wrong
“Flat tax means low tax.”
Indiana's 2.95% 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 $80,000, that 2.95% is $2,360, 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.
“No local taxes means Indiana is cheaper than other states.”
While Indiana avoids local income tax complications, the flat 2.95% 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.
“Everyone pays the same percentage, so it's fair.”
While everyone pays the same 2.95% rate in Indiana, the economic impact is different. 2.95% of a $35,000 salary ($1,033) represents a larger share of disposable income than 2.95% of $150,000 ($4,425). 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.
Key Facts That Affect Your Take-Home Pay
- Indiana uses a flat 2.95% 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 $30,000 or $300,000. 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 2.95% 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 2.95% 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 2.95% state rate.
