A portion of pension and annuity income is taxable in Indiana but payments from life insurance policies are not considered taxable income. Income from rental properties, dividends, interest, and royalties is taxable in Indiana. This means that most retirement income is taxed.
Indiana Income Taxes
Residents of Indiana could have to pay three different income taxes, the federal income tax, the 3.4% state income tax, and a county income tax. Indiana law lets counties charge income tax just like the state. Not every county in the state has an income tax but many do. The county income tax rate varies from county to county but it's usually under 1%.
The amount of the county income tax will be listed in the Individual Income Tax Forms book prepared by the state Department of Revenue. The county income tax must be paid just like the state or federal income tax. The amount of county income tax an individual pays is based upon the amount of adjusted gross income used to determine his or her state income tax. This means that any amount deducted from the state income tax can be deducted from the county income tax.
Indiana Income Tax Deductions
Social Security and railroad retirement benefits are not taxed in Indiana. That means Hoosiers can deduct the amount of Social Security income listed on their federal tax return from their state tax return. Indiana also allows every resident a $1,000 exemption from the state income tax and an additional $1,000 exemption for individuals over 65. Persons over 65 years old with an income under $40,000 a year can claim an additional $500 exemption.
Property taxes are deductible from income tax in Indiana. A homeowner can deduct the full amount of property taxes or a flat amount from his or her state income taxes. Persons who rent their homes can deduct their rent or a flat rate of $2,500 from their state income tax as well.
Specific tax credits and deductions are available in different parts of Indiana. A full list of Indiana Tax Credits and Deductions is available from the state's Department of Revenue.
Indiana Property Tax
Although property taxes in Indiana are assessed and collected by local governments, they are overseen by a state agency called the Department of Local Government Finance. This agency's Tax Bill Calculator can show you what your property tax bill will be.
Indiana makes a number of Property Tax Deductions that can reduce the tax bill by cutting the assessed property value. These include the Homestead Deduction, which lets a homeowner deduct up to $45,000 from his or her home's assessed value from the property tax bill.
There are two property tax deductions for homeowners over 65. The Circuit Breaker Deduction prevents property taxes from increasing by more than 2% a year for homeowners over 65 with an income under $40,000 a year. The other deduction allows persons with incomes under $25,000 a year to deduct an additional $12,000 from their assessed valuation.
Indiana Sales Tax
Indiana has a 7% state sales tax that affects most retail transactions. This tax is applied to utilities and cable and satellite TV subscriptions. Food purchased at grocery stores is usually exempt from state sales tax. The tax applies to food sold by grocery store delis, candy, soft drinks and non food items sold by grocery stores in Indiana.
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