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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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Indiana

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The Bottom Line
Map of Indiana

MIXED TAX PICTURE

The Hoosier State offers a few special tax breaks to retirees. It exempts Social Security benefits, and it offers limited exemptions for military pensions and federal civil-service pensions. Its state income tax is a flat rate of 3.4%, which will be reduced to 3.23% by 2017, but many counties in Indiana also impose their own income taxes. The state sales tax is high.

State Sales Tax

7% (food and prescription drugs are exempt).

Income Tax Range

The state has a flat rate of 3.4% of federal adjusted gross income. Recently enacted legislation will gradually reduce that flat rate, beginning in tax year 2015, when the rate will be 3.3%. The rate will be reduced to 3.23% in 2017.

Counties also have the authority to impose an income tax, instead of raising property taxes. Currently, all 92 counties have enacted a local option income tax.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Railroad retirement benefits are exempt. Taxpayers 60 and older may exclude as much as $5,000 from military pensions. Taxpayers age 62 and older may deduct from their adjusted gross income $2,000 from a federal civil-service annuity. Out-of-state pensions are fully taxed.

Property Taxes

Property taxes are administered and collected by local government officials. Property, which is assessed at 100% of its market value, is subject to taxation by a variety of taxing units (such as schools, counties, townships, cities and towns, and libraries), making the total tax rate the sum of the rates imposed by all of the applicable taxing units. Homeowners can deduct up to $2,500 from their income taxes for property taxes paid on their residence.

Homeowners are eligible for the standard homestead deduction, which is $45,000 or 60% of the assessed value of the homestead, whichever is less. A taxpayer entitled to receive a standard homestead deduction is also entitled to a supplemental deduction -- 35% for a homestead with an assessed value of less than $600,000, or 25% for a homestead assessed at more than $600,000.

Median property tax on the state's median home value of $123,100 is $1,051, according to the Tax Foundation.

Tax breaks for seniors: Homeowners 65 and older who earn $25,000 or less (combined for a married couple) are eligible to receive a tax reduction on property with an assessed value of $182,430 or less. A surviving spouse is entitled to the deduction if he or she is at least 60 years old and the deceased was at least 65 at the time of death. The amount of the deduction is the lesser of one-half of the assessed value of the property or $12,480.

Inheritance and
Estate Taxes

Indiana has no estate or inheritance tax.

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