Indiana Tax: Guide to Income, Sales, Property, and Retirement Taxes

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Navigating the complexities of state taxes can be daunting, but understanding Indiana's tax landscape is essential for residents and newcomers alike.

In this guide, we'll explore key components of The Hoosier State's tax system, from income and sales taxes to property taxes and retirement benefits.

Indiana state tax: Overview

When it comes to taxes, Indiana is a bit of a mixed bag. The state has a flat income tax rate of 2.95% (2026), which sounds simple enough, but many counties add local income taxes, so what you actually pay can vary depending on where you live.

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On the flip side, Indiana’s sales and property taxes help even things out. While the general sales tax rate is relatively high, the state’s median property tax rate is on the lower side compared to many others.

Ultimately, some of the higher income and sales taxes are offset by more manageable property taxes.

[Data for this state tax guide was gathered from a number of sources including the U.S. Census Bureau, the state’s government website, and the Sales Tax Handbook. Property taxes are cited as a rate percentage rather than the assessed value.]

Indiana income tax rate

Indiana had a flat rate individual income tax rate of 3.05% for 2025, and some jurisdictions collect local income taxes. That rate falls to 2.95% for 2026 (returns filed in 2027).

Indiana retirement taxes

Indiana has a low flat tax rate for taxable income, which can be beneficial, since the state only exempts Social Security.

Social Security: Not taxable
401(k) and IRA Distributions: Taxable
Pensions: Taxable

Indiana sales tax

Still life of a small shopping cart with $1 USD bills

Indiana's state sales tax rate is 7%. There are no local sales taxes in the state.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Taxable
Prescription Drugs: Exempt

How much is property tax in Indiana?

In Indiana, the median property tax rate is 0.71% (0.77% for 2026) of owner-occupied housing value, according to the Tax Foundation.

Indiana Property Tax Breaks for Retirees

Indiana offers two property tax breaks for older adults aged 65 or over. One is the "over 65 or surviving spouse deduction" and the other is the state's "over 65 circuit breaker credit."

Property tax changes for 2026

The standard homestead deduction has been reduced from $48,000 to $40,000 in 2026.
The supplemental homestead deduction increases from 35% to 43%.
Beginning in 2026, homeowners can receive a credit equal to 10% of their property tax bill, capped at $300.
Eligible homeowners can get extra property tax credits that can stack with their other credits. These include:
- $150 for qualifying fixed-income seniors
- $125 for blind or disabled homeowners
- $250 for disabled veterans

Indiana gas tax

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Product	Tax Amount
Gasoline	$0.18 per gallon
Diesel	$0.16 per gallon

Source: The Sales Tax Handbook

Indiana taxes on alcohol and tobacco

Indiana Tobacco Taxes

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Product	Tax Amount
Cigarettes	$1 per pack of 20
Other Tobacco Products	24% of wholesale price

Source: The Sales Tax Handbook

Indiana Alcohol Taxes

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Product	Tax Amount
Beer	$0.12 per gallon
Wine	$0.47 per gallon
Liquor	$2.68 per gallon

Source: The Sales Tax Handbook

Indiana estate and inheritance taxes

There are no estate or inheritance taxes in Indiana.

Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.