How Indiana taxes a paycheck
Indiana's state rate fell from 3.0% to 2.95% on 1 January 2026, the latest step in a phase-down begun in 2023 (it was 3.23% in 2022) and set by SB 451 of 2025 to reach 2.9% in 2027. The rate is flat and applies after a $1,000 personal exemption per filer and $1,000 per dependent (plus an extra $1,500 for each qualifying child); Indiana has no standard deduction.
The state rate is only part of the story. All 92 Indiana counties levy a local income tax on residents, set by each county council, ranging from about 0.5% to 3%. Marion County (Indianapolis) is 2.02%, Allen County (Fort Wayne) 1.59%, Lake County 1.5% and Hamilton County 1.1%. The county tax is withheld with the state tax based on the county of residence on 1 January, and it typically adds more to a paycheck than the state's 2.95% removes in cuts. It is not included in this estimate because it depends on the county.
How much taxes are taken out of paychecks in Indiana?
On a $60,000 salary in 2026, a single filer in Indiana pays about $5,020 in federal income tax, $4,590 in Social Security and Medicare, and about $1,740 in Indiana state income tax, leaving roughly $48,650 a year or $1,871 every two weeks before county tax. A Marion County resident would pay a further $1,190 at 2.02%, bringing the state-and-local share to about 4.9% of gross.
The state share alone is 2.9% of gross pay and, because the exemption is small, it stays at about that level at every salary.
Indiana compared with its neighbours
Indiana's 2.95% is the lowest flat rate among its neighbours: Illinois is 4.95%, Michigan 4.25%, Kentucky 3.5% and Ohio 2.75% above $26,050. On a $60,000 single salary the state tax is about $1,740 in Indiana, $2,830 in Illinois, $2,300 in Michigan, $1,980 in Kentucky and $870 in Ohio.
Every one of those neighbours except Illinois also has local income taxes, so the fair comparison is state plus local. An Indianapolis resident at 2.95% plus 2.02% is close to a Columbus, Ohio resident at 2.75% plus the city's 2.5%, and to a Louisville resident at Kentucky's 3.5% plus 2.2%.
Withholding forms and filing status in Indiana
Indiana employers withhold from Form WH-4, which asks for the county of residence and the county of employment as of 1 January, because the county tax is withheld with the state tax; the residence county's rate applies, or the employment county's if the employee lives outside Indiana. Exemptions of $1,000 per person reduce the wages subject to both taxes. Filing status does not affect the flat rate.
Indiana has reciprocal agreements with Kentucky, Michigan, Ohio, Pennsylvania and Wisconsin, so residents of those states working in Indiana pay only their home state's tax (though they may still owe the Indiana county tax for the county where they work). There is no agreement with Illinois; Indiana residents commuting to Chicago pay Illinois tax and credit it against Indiana.