Taxation in Indiana

Taxes in Indiana are almost entirely authorized at the state level, although the revenue is used to fund both local and state level government. The state of Indiana's income comes from four primary tax areas. Most state level income is from a sales tax of 7% and a flat state income tax of 3.3%. The state also collects an additional income tax for some counties. Local governments are funded by a property tax that is the sum of rates set by local boards, but the total rate must be approved by the Indiana General Assembly before it can be imposed. Residential property tax rates are capped at maximum of 1% of property value. Excise tax is the fourth form of taxation and is charged on motor vehicles, alcohol, tobacco, gasoline, and certain other forms of movable property; most of the proceeds are used to fund state and local roads and health programs. The Indiana Department of Revenue collects all taxes and pays them out to the appropriate agencies and municipalities. The Indiana Tax Court deals with all tax disputes issues, but decisions can be appealed to the Indiana Supreme Court.

Indiana imposes a flat 3.3% tax on the personal income. The base taxable amount is equal to the adjusted gross income determined on a payers federal tax return. The taxable amount can be lowered by applying several income tax deductions. The largest deductions in 2013 were a $3,000 deduction for rent paid and a deduction equal to the amount of taxes paid out of state. Additional deductions are provided to the elderly and handicapped.

Some counties within Indiana also fund their government using an income tax. The highest county income tax in the state is 3.1% and it is charged in addition to the state income tax. County income taxes rate are set by the county board of commissioners and submitted to the Department of Revenue. The department forwards the request to the state legislature where the requested rate must be approved by the Indiana General Assembly.

For most individuals working within Indiana, the state income is withheld from their paycheck. For individuals working outside the state, and for certain types of individuals within the state, quarterly estimated payments are made, with any remaining amount paid when the tax return is filed. If the amount of taxes due at the time of filing is $1,000 or greater, penalty fees and interest charges are assessed in addition to the tax owed.

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