How does Indiana state income tax and unemployment insurance work in 2026?
A 2.95 percent flat state rate that looks simple, a mandatory county tax in every one of the 92 counties, and a 1 January residence rule that locks the county rate for the year.
· Indiana, United States guide
Photo: Ryan De Hamer via Unsplash · Indianapolis, Indiana
If you run Indiana payroll on the state rate alone, you will under-withhold every Indiana employee from day one. Not might. Will.
Indiana’s flat state rate is 2.95 percent in 2026, one of the lowest in the country. But all 92 counties charge their own income tax on top, ranging from 0.50 percent to 3.38 percent. A developer in Indianapolis at $120,000 owes another $2,424 a year to Marion County, on top of $3,540 in state tax. The state line catches that. A payroll keyed only off the state rate does not.
Most US employers have heard Indiana is a low-tax state. Fewer know the county overlay locks in on 1 January each year via Form WH-4 and stays fixed for the whole calendar year, regardless of moves.
This page covers the 2.95 percent state rate, the all-92-counties overlay, the WH-4 residence rule, the $9,500 SUI wage base, the 2.5 percent new-employer rate, and the INTIME filing cadence you need to run a clean Indiana payroll.
What is the Indiana state income tax rate in 2026?
Indiana charges a single 2.95 percent flat rate on all individual taxable income for 2026. No brackets. No phase-outs. No marginal cliffs.
The rate stepped down from 3.00 percent in 2025 under the schedule set by House Bill 1001 in 2023. Further reductions to 2.90 percent in 2027 and as low as 2.55 percent by 2030 are scheduled, contingent on the state hitting revenue triggers.
Caleb is a developer in Indianapolis earning $120,000. His Indiana state tax for the year is $3,540, gross times 2.95 percent, before any pre-tax deductions. Simple to model. The state line, however, is only half the story.
| Tax year | Indiana flat rate | Authority |
|---|---|---|
| 2022 | 3.23% | Ind. Code Title 6, Art. 3 |
| 2023 | 3.15% | Per HB 1001 (2022 session) |
| 2024 | 3.05% | Per HB 1001 (2023 session) accelerated schedule |
| 2025 | 3.00% | Per HB 1001 (2023 session) |
| 2026 | 2.95% | Per HB 1001 (2023 session); Ind. Code Title 6, Art. 3 |
| 2027 (scheduled) | 2.90% | Per HB 1001 (2023 session) |
| 2030 onwards (conditional) | Down to 2.55% | Per HB 1001 (2023 session), only if revenue triggers met |
Indiana sits near the bottom of the state-rate table
The 2.95 percent flat rate puts Indiana below Pennsylvania at 3.07 percent and just above Arizona’s 2.5 percent flat. For Caleb’s $120,000, the same offer recut for California carries roughly $8,400 in state tax at the 9.3 percent marginal bracket. New York lands somewhere in between. On state tax alone, Indiana is one of the simpler US states to model.
The phased reduction schedule has a revenue trigger
The 2027 step to 2.90 percent is on the books. The reductions beyond that depend on state revenue performance against the trigger formula written into the 2023 bill. If revenue falls short, the rate holds. Set offer-letter calculators to 2.95 percent for 2026 and the scheduled 2.90 percent for 2027, and re-check the trigger status each November before locking next year’s payroll configuration.
What this means for offer letters
Flat rate, no brackets, no phase-outs, gross wages times 2.95 percent before federal pre-tax deductions, full stop. The complexity in Indiana payroll lives in the county overlay, not in the state line. An offer-letter calculator that stops at the state rate is wrong on every Indiana hire.
All 92 Indiana counties charge their own income tax
Every one of Indiana’s 92 counties levies a county income tax on top of the state flat rate. Rates range from 0.50 percent at the low end to 3.38 percent at the high end. There is no Indiana resident who escapes a county layer.
The county rate is set by the county of residence on 1 January each year. It locks for the full calendar year. If your employee moves in March, the rate does not change until next 1 January.
Caleb lives in Indianapolis (Marion County). His combined Indiana tax is 2.95 percent state plus 2.02 percent Marion County, for 4.97 percent total. On $120,000 that is $5,964 a year, of which $2,424 is the county slice the state-only payroll missed.
| County | 2026 county rate | Combined with state 2.95% | Source |
|---|---|---|---|
| Marion (Indianapolis) | 2.02% | 4.97% | Ind. Code Title 6, Art. 3.6; DOR Departmental Notice #1 |
| Allen (Fort Wayne) | 1.59% | 4.54% | DOR DN #1, verify current rate |
| St. Joseph (South Bend) | 1.75% | 4.70% | DOR DN #1, verify current rate |
| Lake (Gary, Hammond) | 1.50% | 4.45% | DOR DN #1, verify current rate |
| Hamilton (Indianapolis north suburbs) | 1.10% | 4.05% | DOR DN #1, verify current rate |
| Pulaski (highest in state) | 3.38% | 6.33% | DOR DN #1, verify current rate |
| State range floor (several counties) | 0.50% | 3.45% | DOR DN #1 |
The 1 January rule is unforgiving
The county rate is set by where the employee lives on 1 January. If Caleb moved from Marion County to Hamilton County on 15 February 2026, his county tax stays at the Marion 2.02 percent for the whole of 2026. Hamilton County’s 1.10 percent applies starting 1 January 2027. This is unusual among US states, most local taxes follow the work or residence address day to day. Indiana freezes it at the start of the year.
Non-resident rule for out-of-state hires
Naomi runs sales out of Fort Wayne for a Chicago-headquartered employer, lives in Illinois, and her principal place of work in Allen County is fixed as of 1 January. Allen County’s non-resident rate (typically lower than the resident rate) applies. The rule turns on what was true on 1 January, not what is true today. WH-4 captures both county of residence and county of principal employment for exactly this reason.
The county overlay is the catch most multi-state systems miss
National payroll providers default to the state rate. Indiana is the most common US state where that default is wrong on every paycheque. Caleb at $120,000 owes Marion County $2,424 a year. Mason in South Bend at $80,000 owes St. Joseph County $1,400. A 10-person Indiana payroll, mixed across four counties, under-withholds by roughly $12,000 to $18,000 a year if the system is keyed off the state rate alone. The back-withholding clock starts the day the first paycheque went out underconfigured.
What is Form WH-4 and how does it work?
Form WH-4 is Indiana’s Employee’s Withholding Exemption and County Status Certificate. Every Indiana new hire must complete one, separate from the federal W-4. The form captures county of residence and county of principal employment as of 1 January, plus personal exemptions.
If the employee does not file a WH-4, the employer must withhold state tax at single status with zero exemptions and withhold county tax at the higher of the two rates (typically county of employment, not residence). The default is aggressive on purpose.
Mason starts an operations role in South Bend. On day one he files WH-4 with St. Joseph County as both residence and principal employment as of 1 January. Caleb in Indianapolis files Marion County for both. Naomi in Fort Wayne files Allen County for principal employment and Cook County, Illinois for residence (non-Indiana). All three drive different county tax calculations on the same payroll run.
What WH-4 actually asks:
- Indiana county of residence as of 1 January. The single most important field on the form. Drives the county tax rate that applies for the full calendar year.
- Indiana county of principal employment as of 1 January. Used if the employee is a non-Indiana resident, or if the residence county is blank, or as the default when the residence county does not levy a non-resident rate.
- Personal exemptions. One for self, one if married filing jointly, one for each dependent claimed for Indiana purposes. Reduces the gross subject to withholding.
- Additional state withholding per pay period. Flat dollar amount on top of the calculated state withholding, for employees who want to over-pay.
- Additional county withholding per pay period. Same mechanic for county tax.
WH-4 is not a one-and-done form
An employee who moves between Indiana counties should file an updated WH-4 the following January to reflect their new residence county as of 1 January. An employer that receives an updated form mid-year notes the change for the next-year calculation but does not change current-year withholding, the locked-on-1-January rule applies.
The penalty default is steep
An employee with no WH-4 on file is treated as single with zero exemptions for state withholding, plus the higher of the two county rates for county withholding. For Caleb in Indianapolis at $120,000, that combined default withholding runs roughly 12 to 18 percent higher than if he had filed correctly claiming himself as one exemption with the Marion County resident rate. The employee gets a refund instead of accurate take-home, and the gap accumulates across pay periods. Teamed’s onboarding flow captures WH-4 alongside federal W-4 and Form I-9 in a single digital signing session on day one, so the highest-rate default never fires.
The Indiana SUI wage base is $9,500
Indiana calculates unemployment insurance on the first $9,500 of each employee’s annual wages. That is one of the lowest UI bases in the country, only $2,500 above the federal FUTA floor of $7,000.
New employers pay 2.5 percent for the first four calendar years, capped at $237.50 per employee per year. Experienced employers run a merit-rated band of 0.50 percent to 7.40 percent, capped at $703 per employee per year. A delinquent employer pays a penalty rate up to 9.40 percent.
Naomi in Fort Wayne earns $80,000 in sales. She caps the $9,500 SUI base by early February. After that, SUI is zero on every paycheque for the rest of the year. The whole annual SUI line for that hire concentrates in Q1, not spread evenly across the year.
| Stage | Rate | Max per employee / year | Source |
|---|---|---|---|
| New employer (first four calendar years) | 2.5% | $237.50 | Ind. DWD Employer Handbook |
| Experience-rated, lowest step | 0.50% | $47.50 | Ind. DWD merit-rate schedule |
| Experience-rated, top step | 7.40% | $703.00 | Ind. DWD merit-rate schedule |
| Delinquent employer (penalty rate) | 9.40% | $893.00 | Ind. DWD merit-rate schedule |
The merit-rate calculation
Indiana DWD calculates each employer’s merit rate annually from the experience account balance as of 30 June, divided by the past 36 months of payroll. A stable employer with few separations settles near the 0.50 percent floor. A high-turnover employer trends toward the 7.40 percent ceiling. The Merit Rate Notice arrives via the Uplink Employer Self Service portal in November or December for the following calendar year.
The early-year cash-flow point
Because the $9,500 wage base is so low, a full-time Indiana employee earning more than about $60,000 hits the SUI cap within the first six weeks of the year. After that, SUI is zero for the rest of the year on that employee. The whole annual bill concentrates in Q1, not spread evenly across the four quarters. Teamed’s payroll engine forecasts the cap-date per employee so the Q1 cash spike is on your books before the first January payroll runs, not a surprise on the Q1 close.
FUTA credit interaction
Federal Unemployment Tax is 6.0 percent on the first $7,000. An Indiana employer that pays state SUI in full and on time receives a FUTA credit of 5.4 percent, leaving an effective FUTA of 0.6 percent ($42 per employee per year). Late or partial Indiana SUI payment erodes the federal credit and pushes the effective FUTA rate up. Teamed’s payroll books both lines together so the credit never gets lost.
How does an Indiana employer file withholding?
Indiana uses Form WH-1 as the deposit voucher for both state and county withholding on a single filing. Indiana DOR assigns the filing cadence at registration based on expected withholding volume. Four cadences are possible: annual, quarterly, monthly, and early-filer.
Annual reconciliation is Form WH-3, due by 31 January with W-2 copies for every employee. All filing runs through INTIME at intime.dor.in.gov; paper filing is no longer accepted.
A 20-person Indiana payroll typically lands on the monthly cadence. WH-1 is due by the 30th day after the end of each month, covering state withholding for all employees plus the county withholding broken out by county on the same voucher.
One WH-1 covers state and all county withholding. INTIME for state, Uplink for SUI. WH-3 annual reconciliation by 31 January. Zero-fill required even in periods with no withholding, skip a period and the delinquency clock starts immediately.
| Form | What it is | Frequency | Due |
|---|---|---|---|
| WH-1 | Withholding Tax Voucher (state + county on one form) | Annual / quarterly / monthly / early-filer (DOR-assigned) | 20th or 30th day after period end depending on cadence |
| WH-3 | Annual Withholding Reconciliation | Annual | 31 January, with W-2 copies |
| WH-4 | Employee’s Withholding Exemption and County Status Certificate | Per new hire; updates as needed | On hire date and retained in payroll file |
| UC-1 | SUI quarterly contribution and wage report | Quarterly | 30 April, 31 July, 31 October, 31 January |
| 1099 / K-1 transmittals | Contractor withholding reports | Annual | 31 January with WH-3 |
The DOR assigns the cadence, not the employer
Indiana DOR sets the WH-1 cadence at registration based on expected withholding volume. Quarterly and annual cadences are typical for the smallest employers. Monthly is the standard for a 20 to 100-person Indiana payroll. Early-filer (a semi-monthly variant) kicks in at higher withholding thresholds. The cadence can shift between years; DOR notifies the employer through INTIME if the assignment changes. You do not pick.
Zero-filing rule
An employer assigned monthly must file a WH-1 every month, even if there was no Indiana withholding for the period. A zero return is required. Skip a period and the DOR delinquency clock starts. The annual WH-3 is required even in a zero year if the employer was registered at any point in the year.
SUI runs through a different portal
Withholding lives in INTIME. SUI lives in Uplink Employer Self Service at uplink.in.gov. The UC-1 quarterly contribution and wage report files separately from WH-1. Most modern payroll engines connect to both; a manual setup keeps two sets of credentials and two filing routines. Teamed runs both on the same Indiana payroll cycle.
Indiana new-hire reporting closes within 20 days
Indiana employers must report every new hire to the Indiana New Hire Reporting Center within 20 days of the hire date. The requirement covers new hires, rehires, and any employee returning after a 60-day separation.
Failure to report carries a penalty of $25 per unreported employee, rising to $500 per employee if the failure is part of a conspiracy with the employee. Filing runs through in-newhire.com or via SFTP for high-volume payrolls.
Mason starts on 1 March 2026. The new-hire report must be filed by 21 March. Miss it and a $25 penalty sits on your books per unreported employee. Multiply across a 50-person hiring year and the cost climbs quickly.
The new-hire reporting requirement is federal in origin (PRWORA 1996) and codified in Indiana at IC 22-4-10-8. Indiana operates its own state directory rather than relying on the federal database alone, so reports must go to the state portal directly. Bi-monthly batch filing is permitted for employers using SFTP to automate the upload, provided the batches are not more than 12 to 16 days apart, so every individual employee is reported within the 20-day window.
Teamed handles new-hire reporting automatically as part of the standard Indiana onboarding flow. The hire date sits in the employee record, the 20-day clock is tracked in the platform, and the report files via SFTP on a regular cadence. No separate workflow for the operations lead to remember.
How Teamed runs Indiana payroll end to end
Teamed becomes your legal employer of record in Indiana for a flat $599 per employee per month.
You hire the person. We register with INTIME for state withholding, Uplink for SUI, and the New Hire Reporting Center. We run WH-1 deposits state and county on one voucher per the DOR-assigned cadence, reconcile WH-3 by 31 January, and apply the county-of-residence rule from each employee’s WH-4 on day one.
Zero FX mark-up. Statutory employer cost passes through itemised on every invoice. No setup fees. No offboarding fees.
What an Indiana hire through Teamed looks like, day by day:
- Day 0: INBIZ business tax registration via BT-1, INTIME withholding registration, Uplink Employer Self Service registration for SUI, New Hire Reporting Center registration. Teamed’s US entity (Teamed US Inc., Delaware) is the legal employer of record.
- Day 1: employee onboarded with federal W-4, Indiana WH-4 (with both county-of-residence and county-of-employment fields captured), and Form I-9 in a single digital signing session. New-hire report filed via SFTP within 20 days.
- Ongoing: WH-1 filed on the DOR-assigned cadence (annual, quarterly, monthly, or early-filer). State withholding plus per-county withholding broken out on the same voucher. SUI calculated against the $9,500 wage base with cap-date forecast per employee before the first January payroll runs. FUTA credit reconciled against on-time SUI payment so the 5.4 percent credit is never lost.
- Quarterly: UC-1 contribution and wage report filed via Uplink by the last day of the month after each quarter.
- Year end: WH-3 annual reconciliation filed by 31 January with W-2 copies. Annual Merit Rate Notice received via Uplink in November/December and applied to the next year’s payroll from the first January cheque. DN01 county rate refresh applied for any of the 92 counties that changed for the new calendar year.
Pricing is one number per employee per month, in any currency you pay us in. No FX mark-up between your billing currency and the US dollars Teamed remits to the Indiana DOR and DWD. Statutory employer cost, FICA, FUTA, SUI, workers’ compensation insurance, passes through at cost, itemised on every invoice. No hidden fees. Every line is auditable.
Behind the platform sits a named country specialist for the United States and an in-house payroll specialist who knows the WH-4 county-of-residence rule, the all-92-counties overlay, the $9,500 SUI cap-date arithmetic, and the December DN01 refresh by heart. When something looks off on a payslip, you message the same person. No support tickets. No chatbot triage.
Contractor onboarding, EOR payroll, and entity graduation all live on one platform. An Indiana contractor who converts to W-2 keeps their record. That same employee can graduate from EOR to your own Indiana-registered entity without changing systems. Contractor through EOR to entity. One timeline. One platform.
When EOR is the right call (and when it isn’t)
EOR works while you are testing the Indiana market, ramping a small remote team, or running one or two Indiana hires alongside a larger US payroll elsewhere. Indiana is a moderate-volume US state for Teamed. The compliance overhead is real: WH-4 county capture on every hire, DN01 county rate refresh every December, separate INTIME and Uplink filing tracks, and the cap-date arithmetic on a $9,500 SUI base. The maths of running your own Indiana entity starts to win later than in higher-complexity states, often around 12 to 15 Indiana employees. Teamed’s Crossover Calculator shows you the month it flips. The conversation is built into the relationship.
Indiana is the state where the federal-only payroll mindset costs the most on a per-employee basis. The state rate is one of the lowest in the country at 2.95 percent flat, but all 92 counties levy a separate income tax on top, set by where the employee lives on 1 January. Multi-state payroll providers that key off the state rate alone routinely under-withhold by 0.5 to 3.38 percent on every Indiana paycheque. We capture the WH-4 county question at onboarding, refresh the county lookup table every December against Departmental Notice #1, and run state and county on the same WH-1 voucher so neither shows up as a surprise on the Q1 close.
Indiana payroll is two layers, not one.
Easy: a 2.95 percent flat state rate, one of the lowest in the country. Hard: a mandatory county tax in every one of the 92 counties, locked by residence on 1 January and ranging from 0.50 to 3.38 percent.
The discipline is capturing the WH-4 county field at onboarding and refreshing the lookup table every December before the first January payroll runs.
