Indiana income tax goes up to 2.95% at the top bracket. Calculate your combined federal + state effective tax rate for 2026. Formula shown, sources cited — no account required.
The state taxes income at a flat rate of 2.95%, one of the simplest and lowest state income tax structures in the US. Every dollar of taxable income faces the same marginal rate, eliminating the bracket complexity common in graduated systems. For the median earner at $71,959, state income tax comes to roughly $2,123, though most residents also pay a county income tax on top, which varies by county and typically adds 0.5% to 2.9% more. Combined state and local income tax still remains low by national comparison. Federal taxes apply separately at graduated rates, and the combined effective tax rate for a median-income household typically falls in the low-to-mid twenties percent range. The state does allow a partial pension deduction for retired taxpayers and does not tax Social Security benefits, providing some relief for older filers. There is no state alternative minimum tax, and the standard deduction reduces taxable income for most residents. Use the tax bracket calculator to see your effective combined rate at your actual income level.
Indiana Tax Brackets Explained: Low State Rate Keeps Bills Down (2026)
Indiana has a state income tax with a top marginal rate of 2.95%. On top of federal rates (10%–37%), residents can face a combined marginal rate exceeding 35% at higher income levels. However, your effective rate is always lower than the marginal rate because only income above each threshold is taxed at that bracket's rate.
The median household in Indiana earns $71,959/year. At that income (single filer), the federal effective rate is approximately 12–14%, bringing total income tax (federal + state) to roughly 14–16%.
How Marginal vs. Effective Rate Works
The marginal rate is the rate on your last dollar of income — it does not apply to all income. The effective rate is your total tax divided by total income. For example, someone earning $100,000 in Indiana has a 22% federal marginal rate but an effective federal rate of roughly 15%, because the first $44,725 (2024) is taxed at 10% and 12%, not 22%.