Honestly, trying to track Indiana state tax rates usually feels like trying to read a map in a windstorm. Things are shifting. Just when you think you’ve got the math down for your paycheck or your property bill, the General Assembly goes and tweaks the knobs again.
But here’s the thing: 2026 is actually a pretty massive year for Hoosier taxpayers. It’s not just some boring incremental update. We are seeing a real, tangible drop in the state income tax, while local counties are—surprise, surprise—hiking their own rates to make up the difference. It's a bit of a shell game, really.
If you live in a place like Carroll or Grant County, your "tax cut" might actually feel like a wash. You've gotta look at the whole picture to see if you're actually coming out ahead.
The Shrinking State Income Tax
Indiana is currently obsessed with hitting a "flat tax" goal that makes us competitive with our neighbors. For a long time, we sat at 3.23%. Then it dropped to 3.05%. Then 3.0%.
As of January 1, 2026, the Indiana state tax rate for individual income is officially 2.95%.
That sounds tiny. You might be thinking, "Cool, five-hundredths of a percent, I’ll go buy a lottery ticket." But it’s part of a bigger plan. By 2027, the state wants that number down to 2.9%. It’s a slow-motion tax cut designed to keep people from moving to Florida or Tennessee.
Why your paycheck might not look bigger
Here is the catch. Indiana is one of those states that leans heavily on "local option" taxes. While the state takes a smaller bite, your county takes a bigger one. For 2026, several counties just bumped their rates:
- Carroll County jumped from 2.2733% up to 2.4733%.
- Grant County and Union County both hit 2.75%.
- Howard County saw a massive spike, moving from 1.95% to 2.35%.
- Shelby County and Greene County also saw increases.
Basically, if you live in one of these spots, the 0.05% state decrease is getting swallowed whole by the county increase. You’re actually paying more in total income tax this year than you did in 2025. It kind of feels like the state is giving you a five-dollar bill while the county reaches into your back pocket and takes ten.
✨ Don't miss: Why People Search How to Leave the Union NYT and What Happens Next
The 7% Sales Tax Stays Put
While income taxes are moving, the Indiana sales tax is the rock. It’s 7%. No local sales taxes are added on top, which is nice because what you see on the price tag is generally what you get (plus that 7%).
We have the second-highest state-level sales tax in the country, but because we don't have city or county sales taxes, the "combined" rate is often lower than in places like Chicago or Nashville.
There is a weird quirk with gas, though. Indiana uses a "Gasoline Use Tax" that fluctuates monthly based on prices. For January 2026, it’s about 15.4 cents per gallon. That is on top of the regular state gas tax (36 cents) and federal tax. Filling up a truck in Indiana isn't exactly a bargain.
Property Tax Chaos and the "Senate Enrolled Act 1"
If you own a home, 2026 is the year you’ll start seeing the effects of Senate Enrolled Act 1. This was a huge piece of legislation passed to deal with the fact that property values—and therefore property taxes—exploded during the early 2020s.
The state is trying to fix this by playing with deductions.
Starting now, they are phasing in a huge increase to the supplemental homestead deduction. By the time we hit 2031, you'll be able to deduct about 66.7% of your home's assessed value from your tax bill.
The $300 Credit
For the 2026 tax bill specifically, most homeowners are getting a 10% credit, capped at $300. It’s basically a "sorry your house is worth so much more now" gift from the government.
🔗 Read more: TT Ltd Stock Price Explained: What Most Investors Get Wrong About This Textile Pivot
One thing that’s really cool: they are turning some deductions into direct credits for seniors and disabled veterans. A deduction just lowers the value the tax is based on. A credit is a straight-up dollar-for-dollar reduction of the bill. If you're over 65 and make under $60,000 (single) or $70,000 (joint), you’ve got a $150 credit coming your way.
Business Taxes: A Massive Win for Small Shops
If you run a small business in Indiana, 2026 is arguably the best year in a decade.
There is this thing called the Business Personal Property Tax. It’s basically a tax on the equipment you own—computers, lathes, tractors, whatever.
For years, if you had more than $80,000 worth of stuff, you had to pay. As of January 1, 2026, that "de minimis" exemption threshold has skyrocketed to **$2 million**.
Think about that. If your business equipment is worth $1.5 million, you essentially pay zero in personal property tax now. Plus, the state finally killed the "30% floor." Previously, even if your equipment was 20 years old and worthless, the state taxed it as if it were still worth 30% of its original price. Not anymore. Now, it can actually depreciate to zero.
What Most People Get Wrong About Indiana Taxes
A lot of folks think that because we have a "flat tax," everyone pays the same.
That’s not really true when you factor in the county rates. A person in Jasper County (where the local rate is 2.864%) is paying a significantly higher total income tax than someone in Lake County (1.5%).
💡 You might also like: Disney Stock: What the Numbers Really Mean for Your Portfolio
Also, watch out for the "hidden" taxes:
- Cigarettes: The tax just went up by a dollar, making it roughly $2.99 per pack.
- Food and Beverage: If you're eating out in Indy or certain other cities, there’s an extra 1% tax on your meal.
- Innkeeper’s Tax: Staying in a hotel? You’re likely paying an extra 5% to 8% depending on the county.
Moving Forward: Actionable Steps for 2026
You don't want to leave money on the table. Tax laws changed so much in the last session that you might be eligible for things you weren't a year ago.
Check your Homestead status. If you bought a house in 2025 or refinanced, make sure your Homestead Deduction is still on file. Most counties require this to be settled by mid-January to reflect on your 2026 bills. Without it, your property taxes could literally double.
Update your payroll withholdings. If you live in Carroll, Grant, Greene, Howard, Shelby, or Union counties, your paycheck is going to be slightly smaller because of the local rate hikes. Check your pay stub in February to make sure the right amount is being taken out so you don't get hit with a "tax due" bill next April.
Look into the Over-65 Credit. The income limits for the senior property tax credit were expanded. If you were previously "too rich" to qualify at $40,000, you might qualify now under the $60,000/$70,000 limits.
Small Business owners: File anyway. Even if your equipment is under the $2 million mark, you still have to file the paperwork to claim the exemption. Don't assume it's automatic or the county will send you a bill for the full amount.
Indiana is definitely becoming a lower-tax state on paper, but the complexity hasn't gone away. Keep an eye on those county-level votes, as that's where the real "rate" is determined these days.
References and Sources:
- Indiana Department of Revenue (DOR), Departmental Notice #1 & #2 (2026).
- Indiana General Assembly, Senate Enrolled Act 1 (2025).
- Tax Foundation, 2026 State Tax Competitiveness Index.
- Association of Indiana Counties, Legislative Update (Jan 2026).