INDIANA
Return to Retiree Tax Map
NICKNAME
The Hoosier State
BOTTOM LINE: MIXED TAX PICTURE
Indiana 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%, 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
Flat rate of 3.4% of federal adjusted gross income. Counties also have the authority to impose an income tax, instead of raising property taxes.
SOCIAL SECURITY
Social Security benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
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, 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.
The standard homestead deduction equals $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, and 25% for a homestead assessed at more than $600,000 -- from the assessed value of the homestead.
Tax breaks for seniors: Homeowners 65 and older who earn $25,000 or less 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 65 at the time of death. The amount of the deduction is the lesser of one-half of the assessed value of the real property or $12,480.
INHERITANCE AND ESTATE TAXES
Indiana has no estate tax. Heirs are subject to an inheritance tax, though. That tax ranges from 1% to 20%, depending on what class the heir falls into and the value of property transferred at death. Spouses and charities are exempt from the inheritance tax. Starting in 2013, the inheritance tax will be gradually phased out through a tax credit that will rise annually over the next decade. By 2022, the tax will be completely repealed.
Visit RetirementLiving.com for a complete rundown of taxes in Indiana.
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