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Official Tax Guide

Indiana Taxes 2025: Income, Sales, and Property Tax Guide

Complete guide to Indiana state taxes. Income tax (3.05% (Flat)), sales tax, and what you need to know before moving.

Updated January 15, 2026
5 min read

State Tax Guide 2025: Indiana

Welcome to Indiana! As you settle into the Hoosier State, understanding the tax landscape is crucial for your financial planning. This guide provides a clear overview of Indiana’s tax structure for 2025, focusing on key areas relevant to new residents.

1. Income Tax

Indiana utilizes a simple and predictable income tax system, which is a significant draw for many relocating individuals and families.

  • Tax Rate: The state income tax rate is a flat 3.05%.
  • Flat vs. Progressive: This is a flat tax system. This means that regardless of your income level—whether you earn $30,000 or $300,000—you pay the same 3.05% rate on your taxable income. There are no tax brackets that increase your rate as you earn more.
  • Filing: Both residents and part-year residents are required to file a state tax return if they meet certain income thresholds.

2. Sales Tax

When you shop in Indiana, you will encounter a state-mandated sales tax on most goods and some services.

  • State Sales Tax Rate: The statewide sales tax rate is 7%.
  • Local Taxes: While the state sets the base rate, local jurisdictions (cities, counties, and special districts) do not have the authority to add their own additional sales tax. The 7% rate is consistent across the entire state, making it easy to calculate your purchases.
  • Taxable Items: This tax applies to most retail goods. Groceries for at-home consumption are exempt from sales tax. However, prepared foods (like restaurant meals) and soft drinks are taxable.

3. Property Tax

Property taxes in Indiana are primarily levied at the local level to fund schools, libraries, and other municipal services.

  • General Context: Indiana’s property tax system is generally considered moderate compared to national averages. The state has constitutional caps that limit the total property tax burden on homes, farmland, and other real estate.
  • Assessment: Property taxes are calculated based on the assessed value of your real estate. Tax rates, known as "tax levies," vary significantly by county, school district, and other local taxing units.
  • Homestead Deduction: As a new homeowner, you can claim a homestead deduction on your primary residence, which reduces the taxable value of your property. Be sure to file for this with your county assessor’s office.

4. Other Taxes

Beyond income, sales, and property taxes, there are a few other notable taxes to be aware of.

  • Gas Tax: Indiana’s gasoline tax is a combination of a fixed excise tax per gallon and a sales tax that fluctuates with the price of fuel. This is included in the price you see at the pump.
  • "Sin" Taxes: Excise taxes are applied to products like alcohol, cigarettes, and tobacco products. These are typically baked into the retail price.
  • Inheritance Tax: Indiana does not have an inheritance tax. This is a significant benefit for those looking to pass assets to heirs. (Note: While Indiana has no inheritance tax, federal estate tax rules may still apply depending on the value of the estate).

5. Tax Considerations for Retirees

Indiana is a relatively tax-friendly state for retirees, but there are key details to understand.

  • Retirement Income: Indiana fully exempts retirement income from state taxation. This includes:
    • Social Security benefits
    • Distributions from 401(k)s and IRAs
    • Pension income
    • Railroad Retirement benefits
  • Other Retirement Considerations: While retirement income is exempt, other forms of income, such as wages from part-time employment or investment income (dividends, interest, capital gains), are taxable at the flat 3.05% rate.

6. Comparison to Neighboring States

Here’s a brief look at how Indiana’s tax structure compares to its immediate neighbors as of 2025. This can help provide context for your financial planning.

  • Illinois: Has a higher flat income tax rate (4.95%) and a 6.25% state sales tax, but lower property taxes in some areas compared to national averages.
  • Kentucky: Features a progressive income tax (ranging from 2% to 4%) and a 6% sales tax. The tax structure is somewhat similar, but the progressive income tax means rates vary by income level.
  • Michigan: Has a flat 4.25% income tax rate. Sales tax is 6%, but local taxes can push the total higher. Michigan also taxes most retirement income, which is a key difference from Indiana.
  • Ohio: Uses a progressive income tax system with several brackets. The state sales tax rate is 5.75%, but local taxes can add up to 2.25%, for a potential total of 8%. Ohio also has specific exemptions for retirement income, but the overall structure is more complex.
  • Wisconsin: Has a progressive income tax system and a 5% state sales tax. Wisconsin is often considered more tax-friendly for property owners but less so for income earners compared to Indiana's flat tax.

DISCLAIMER: Tax laws change frequently and can have a significant impact on your financial situation. This guide is for informational purposes only and is based on data for 2025. It is not a substitute for professional tax advice. Consult a qualified CPA or tax professional before making any major financial decisions.