Tool | November 2017

State-by-State Guide to Taxes on Retirees

Indiana

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The Bottom Line
Map of Indiana

Least Tax-Friendly

The Hoosier State promotes itself as a low-tax haven, but some retirees may beg to differ. While the state exempts Social Security benefits and offers limited exemptions for military pensions and federal civil-service pensions, IRAs, 401(k) plans and private pensions are fully taxable. And in addition to state taxes, counties and school districts can levy income taxes as well.

It's one of Kiplinger's least tax-friendly states for rtirees. Keep in mind, too, that counties have the authority to levy their own income taxes on top of the state’s flat tax. Rates range from 0.2% (Vermillion County) to 3.38% (Pulaski County).

State Sales Tax

State levy of 7%.

Income Tax Range

The Hoosier State taxes income at a flat rate of 3.23%, but counties levy their own income taxes, at rates ranging from 0.2% (Vermillion County) to 3.38% (Pulaski County).

Effective income tax rate: 3.3%/individual, 5.1%/joint (Calculated using Indianapolis as domicile)

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Railroad retirement benefits are exempt. Taxpayers over 65 get to claim an additional personal exemption of $1,000. 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 up to $16,000 for 2017 from a federal civil-service annuity (minus Social Security and Railroad retirement benefits received). Out-of-state pensions are fully taxed.

IRAs

Taxable at ordinary income tax rates.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Taxable at ordinary income tax rates.

Private Pensions

Taxable at ordinary income tax rates.

Public Pensions

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 up to $16,000 for 2017 from a federal civil-service annuity (the exemption is minus Social Security and Railroad retirement benefits received). Out-of-state pensions are fully taxed.

Property Taxes

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.

The median property tax on Indiana's median home value of $124,300 is $1,081.

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. Veterans 62 or older with a disability of at least 10% may qualify for a similar deduction.

Inheritance and Estate Taxes

Indiana has no estate or inheritance tax.