Go to Retiree Tax Map Indiana Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line 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.It’s one of Kiplinger’s least tax-friendly states for retirees. 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 0.35% (Jefferson 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 as high as 3.38% (Pulaski County). The average is 1.56%, according to the Tax Foundation. Social Security Benefits are not taxed. Exemptions for Other Retirement Income 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 from a federal civil-service annuity (minus Social Security and Railroad retirement benefits received). Out-of-state pensions are fully taxed. Railroad retirement benefits are exempt. IRAsTaxable at ordinary income tax rates.401(k)s and Other Defined-Contribution Employer Retirement PlansTaxable at ordinary income tax rates.Private PensionsTaxable at ordinary income tax rates.Public PensionsTaxpayers 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 from a federal civil-service annuity (the exemption is minus Social Security and Railroad retirement benefits received). Out-of-state pensions are fully taxed. Railroad retirement benefits are exempt. Property Taxes The median property tax on Indiana’s median home value of $126,500 is $1,100.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. The amount of the deduction is the lesser of one-half of the assessed value of the property or $12,480. The state also allows those 65 or older with an income under $30,000 ($40,000 for couples) to have increases in assessed value limited to 2% a year. This benefit is limited to properties with an assessed value below $160,000. Vehicle Taxes Sales tax is due on purchases. An annual excise tax is also levied, based on a car’s original MSRP and discounted for age. The amount due on a three-year old car that cost $20,000 would be $189. Inheritance and Estate Taxes None.