State-by-State Guide to Taxes on Retirees - Indiana
Tool | November 2018

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.

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.

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 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.

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