Indiana Tax and CPA Services: State, County and City Taxes

Indiana borders Illinois, so many Chicagoland residents work in northwest Indiana, own property there or live there and commute to Illinois. Indiana is also unusual because it combines a flat state income tax with a separate county income tax in all 92 counties, which means the total rate depends on a county. This page explains the state's individual, business, sales and payroll rules for people who live in, work in or sell into Indiana. We serve Indiana clients remotely from our Naperville, Illinois office.

Individual and county income tax

The Indiana Department of Revenue (DOR) states that the individual adjusted gross income tax rate for 2026 is 2.95 percent and will adjust in 2027 to 2.90 percent. On top of that, county income tax rates may be adjusted in January and October, and DOR publishes a county rate chart in Departmental Notice #1 and in the IT-40 instruction booklet. The combined state and county burden therefore depends on which county you are tied to.

For residents, the county tied to your tax is generally the county where you live. If you were not an Indiana resident but your county of principal business or employment was in Indiana on January 1 of the tax year, you figure county tax on the income from that county. That rule matters for Illinois residents who work for employers in Lake or Porter County, and for Indiana residents who work in Illinois.

Which return you file depends on residency:

• IT-40: full-year residents.
• IT-40PNR: part-year residents and full-year nonresidents with Indiana-source income.
• IT-40RNR: residents of Kentucky, Michigan, Ohio, Pennsylvania or Wisconsin who received Indiana wages, salaries, tips or commissions, a reciprocal arrangement that lets them file only in their home state for that income.

Illinois is not on the reciprocal list, so an Illinois resident with Indiana wages generally files in Indiana and then claims a credit on the Illinois return for the Indiana tax. Residents who leave Indiana for a temporary stay remain residents, and DOR notes that a retiree who spends winters elsewhere may still be a full-year Indiana resident, depending on facts. See our multi-state tax service and the Chicagoland overview.

Business taxes

Indiana lets certain pass-through entities elect to pay tax at the entity level, based on each owner's total share of adjusted gross income, under legislation signed in February 2023 and retroactive to tax years beginning on or after January 1, 2022. The owner then receives a refundable credit equal to the tax the entity paid on their share, and another credit is available for pass-through entity tax paid to another state. The purpose is to allow an unlimited federal deduction for state tax payments; see SALT deduction and property taxes. The entity files Form IN-PTET.

Late-filing penalties are heavy: failure to file a corporate or partnership return reporting zero liability costs $10 a day up to $250, plus a separate $10 penalty per late Schedule K-1.

Sales and use tax

The sales tax for the entire State of Indiana is 7 percent. Use tax is due on property brought into Indiana unless it is exempt, and a buyer who paid at least 7 percent sales tax at purchase owes no use tax. A seller must obtain a registered retail merchant's certificate and collect Indiana tax once gross revenue from sales into the state exceeds $100,000 in the previous or current calendar year, and since January 1, 2024 that is the only threshold, since the 200-transaction test was dropped. Businesses register through INBiz and file through the INTIME portal. See sales tax nexus and our sales tax service.

Payroll in Indiana

• State and county withholding: employers withhold state and county income tax from wages, using the county rates in Departmental Notice #1 for each of Indiana's 92 counties. An employer must have a federal EIN and register for withholding through INBiz.
• Reporting: file Form WH-1 for each period, even if no tax is due, and the annual WH-3 reconciliation by January 31. Late WH-1 returns face a penalty of up to 20 percent with a $5 minimum, and a late WH-3 carries a $10 penalty per withholding document. Businesses filing more than 25 W-2, W-2G or 1099-R statements must file them electronically.
• Unemployment insurance: managed by the Indiana Department of Workforce Development, which publishes the taxable wage base and rates; check its current notice. See state unemployment insurance.

See also state income tax withholding for how withholding registration works generally.

Counties and local taxes

Indiana does not have city income taxes, but its county income taxes make the county the key local jurisdiction. DOR offers an interactive county tax rate map showing which taxes are in effect in each county, including sales-related and other local taxes. Property taxes are administered locally by county officials. Employers with staff living in several Indiana counties, or in neighboring states, should review local payroll taxes by city and county. For Illinois comparisons, see our Illinois page, and for the neighboring state to the north, Michigan.

How we can help

We prepare Indiana full-year, part-year and nonresident returns, work out the county tax and Illinois credit when you live and work on different sides of the state line, advise on the PTET election, and set up withholding in the right counties. For a notice from DOR, see state tax notices and representation. Contact us to begin; this page is general information.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.