Overview of Indiana Taxes
The Hoosier state has a flat tax rate, meaning you’re taxed at the same 3.23% rate regardless of your income level or marital status. All 92 counties in Indiana also charge local taxes. These local taxes could bring your total Indiana income tax rate to over 6%, depending on where you live.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Indiana Paycheck Quick Facts
How Your Indiana Paycheck Works
Employers will withhold federal and FICA taxes from your paycheck. Medicare and Social Security taxes together make up FICA taxes. Employers withhold 1.45% in Medicare taxes and 6.2% in Social Security taxes per paycheck. Employers also match this amount for a total FICA contribution of 2.9% for Medicare and 12.4% for Social Security. Note that if you are self-employed, you need to pay that total yourself. However, there are some deductions to help self-employed workers recoup some of those taxes. Additionally, wages that exceed $200,000 are subject to a 0.9% Medicare surtax.
The IRS receives the federal income taxes withheld from your wages and puts them toward your annual income taxes. The amount of federal taxes taken out depends on the information you provided on your W-4 form. Remember that whenever you start a new job or need to make changes, you’ll need to fill out a new W-4. How many allowances you are eligible for and how many you claim on your W-4 affects how much you will pay in taxes each pay period.
In December 2017, President Trump signed a new tax plan that slightly changed the income tax withholding rates. You should have seen changes to your paychecks starting in February 2018. If haven’t already, make sure to check your W-4 just to ensure all the information, like how many allowances you’re claiming, is correct.
Your marital status and how many dependents you have are both factors that affects your allowances. Generally, the more allowances you take, the less you pay in taxes and the bigger your paychecks are. Just be very careful about claiming too many allowances and underpaying your taxes all year. If you do this, you will be hit with a big bill come April. You could even face penalties if you underpay your taxes by $1,000 or more.
It’s also worth noting that if you have more than one job, you cannot claim the same allowances for both. Say, for example you have two allowances that you want to claim, and you work two jobs. You can claim one allowance for each job or you could claim both with one job and none for the other.
Indiana Median Household Income
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Residents of Indiana are taxed at a flat state income rate of 3.23%. That means no matter how much you make, you’re taxed at the same rate.
All counties in Indiana impose their own local income tax rates in addition to the state rate that all employees must pay. Indiana counties’ local tax rates range from 0.35% to 3.38%. Check out the table below for Indiana county tax rates. The same rates apply to residents and nonresidents. If you are thinking about becoming a resident of the Hoosier State, our Indiana mortgage guide can help answer a lot of the questions you may have about getting a mortgage in Indiana, with information about rates and details specific to each county.
Indiana Local Tax Rates
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How You Can Affect Your Indiana Paycheck
If you received a large tax refund or if you were hit with a massive tax bill when you filed your income taxes, consider changing your withholdings and/or allowances on your W-4. If you owed a lot in taxes, you may be claiming too many allowances. This is an easy fix. Just fill out a new W-4 with fewer allowances. Alternatively, you can have a dollar amount withheld from every paycheck by entering that amount on the correct line on your W-4. This allows you to get closer to what you need to pay on your income taxes. (Not sure exactly how much you need to pay? Use this paycheck calculator to find out.)
Conversely, if you received a large refund at tax time, look into whether there are additional allowances that you can claim. While there is nothing wrong with getting a big refund, it’s nice to have access to that money throughout the year. That way you have the choice to invest that money or at least earn interest from a high-interest savings account. Consistently over-paying your taxes is like giving Uncle Sam a tax-free loan each year.
Pre-tax contributions are another factor that affect your take-home pay. You can actually lower your taxable income by taking advantage of certain benefits that your employer may offer. For example, if you put money into a 401(k) or 403(b) retirement account, or a health savings account or flexible spending account, that money will come out of your paycheck before income and FICA taxes are applied. This lowers how much of your income is actually subject to taxation.
Indiana Top Income Tax Rate
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Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2017 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics