How Indiana taxes retirement income

Some 2026 figures pending confirmation Tax year 2026 · research last updated October 2, 2026

Indiana doesn't tax Social Security benefits.
Exclusions and subtractions for retirement income (details below):
- Additional age-65 exemption: from age 65, at most $500 per person, income limits apply.
- Civil service annuity deduction: from age 62, at most $16,000 per person.
- Military retirement income / survivor's benefits deduction.
Rates for 2026: 2.95% flat rate.

At a glance

Income tax	Yes
Rates (2026)	2.95% flat rate
Starts from	Federal adjusted gross income (AGI)
Personal exemption	$1,000 per person
Age 65 and older	$1,000 extra exemption per person
Social Security	Not taxed
Retirement income exclusions	3 (see below)
Roth conversions	Taxable
Capital gains	Taxed like other income
Local income tax	Yes, in some places (see below)

Indiana doesn't tax Social Security benefits.

Pensions, IRAs and 401(k)s

Additional age-65 exemption (low income)

Age: 65+ · Limit: $500 per person

Schedule 3 line 5: an extra $500 exemption per person age 65 or older by Dec. 31 if federal AGI is under $40,000 ($20,000 MFS). This is in addition to the $1,000 age-65 exemption (Schedule 3 line 4, which also gives $1,000 for blindness). It is an exemption, not an income exclusion.

Income limit: Federal AGI (IT-40 line 1) less than $40,000 (less than $20,000 if married filing separately). Cliff, not a phase-out.

Civil service annuity deduction (federal civil service only)

Age: 62+ · Limit: $16,000 per person · Applies to: federal civil service annuity

Per annuitant age 62+ by end of year (or surviving spouse): lesser of taxable federal civil service annuity or $16,000, minus all Social Security and tier 1/tier 2 Railroad Retirement received by that annuitant; not below 0. Does not apply to private pensions or IRAs.

Military retirement income / survivor's benefits deduction

Applies to: military retirement

Military retirement pay and survivor's benefits included in federal AGI are fully deductible (Schedule 2). Noted only; not researched in depth.

Roth conversions

A Roth conversion counts as taxable income for Indiana. Whether a retirement income exclusion can cover part of it depends on the rules above.

Capital gains

Taxed like other income, at the rates above.

Credits and relief for older residents

Unified Tax Credit for the Elderly (refundable, Schedule 5 line 5): age 65+ by Dec. 31, federal AGI under $10,000, 6+ months Indiana residency, married couples must file jointly. Table A (joint, both 65+): AGI < $1,000 -> $140; $1,000-$2,999 -> $90; $3,000-$9,999 -> $80. Table B (one person 65+ / single): < $1,000 -> $100; $1,000-$2,999 -> $50; $3,000-$9,999 -> $40.
Homeowner's residential property tax deduction: smaller of $2,500 ($1,250 MFS) or Indiana property tax paid on principal residence.
Renter's deduction up to $3,000 (not researched in detail).

Local income taxes

Every Indiana county levies a county (local) income tax on residents, computed on Schedule CT-40: county of residence on January 1 of the tax year x Indiana state taxable income (same base as IT-40 line 7, i.e., after the $1,000 personal, $1,000 age-65 and $500 additional age-65 exemptions). Joint filers who lived in different counties on Jan. 1 split income and exemptions per spouse. Rates change Jan. 1 and Oct. 1 and are published in Departmental Notice #1 and on the back of Schedule CT-40; Departmental Notice #1 (R47, effective Oct. 1, 2026) lists resident rates from 0.5% (Porter) to 3.00% (Randolph); only Boone changed since Jan. 1, 2026 (Pulaski is 2.85%, not the 3.38% a secondary source gave). From 2028, SEA 1 (2025) restructures county rates (expenditure rate up to 2.9% in components) and lets eligible cities and towns levy their own municipal rate up to 1.2% (DOR 2025 legislative synopsis, IC 6-3.6-6-2 and 6-3.6-6-22). The app treats this as a user-entered flat local rate applied to Indiana taxable income.

More detail from our research notes

Indiana taxes IRA distributions, Roth conversions, 401(k) and private pension income in full at the flat rate; there is no general retirement-income exclusion. Social Security and Railroad Retirement Board benefits included in federal AGI are subtracted (Schedule 2 lines 5-6). No standard deduction; Indiana does not allow federal itemized deductions (only specific Indiana deductions such as the property-tax and renter's deductions). Exemptions (IC 6-3-1-3.5(a)(3)-(5), 2026 Code; same on the 2025 Schedule 3): $1,000 per filer ($2,000 MFJ); $1,000 per box for age 65+ and/or blind by Dec. 31; +$500 per 65+ person if federal AGI < $40,000 ($20,000 MFS). Fixed dollar amounts, not indexed. Rate schedule set by statute, IC 6-3-2-1(b) (2026 Code): 3.00% 2025, 2.95% 2026, 2.90% for 2027-2029; from 2030 SEA 451 (2025) allows further 0.05-point cuts in even years only if revenue-growth triggers are certified (contingent). 2025 booklet notes Indiana followed the IRC as of Jan. 1, 2023 (did not follow OBBBA); SEA 243 (2026) moves the conformity date to Jan. 1, 2026 (IC 6-3-1-11, retroactive to Jan. 1, 2026; DOR Legislative Synopsis 2026 p. 14), with no retiree-relevant changes beyond the TY2026-only tips/overtime/car-loan deductions, but since Indiana starts from federal AGI and does not use federal below-the-line deductions, the federal $6,000 senior deduction does not affect Indiana.

Pending confirmation

These points were still being confirmed against Indiana's published 2026 forms when this page was built. Most are waiting on forms the state publishes around the turn of the year.

2 items

Unified Tax Credit for the Elderly table and $10,000 limit: statute IC 6-3-3-9(g),(h) confirmed (2026 Code); confirm the IT-40 2026 Schedule 5 wording when published (expected Dec 2026, https://www.in.gov/dor/tax-forms/).
Military retirement deduction details not researched (Taxtirement excludes military retired pay in full via pension-sources.json; IC 6-3-2-4's amount was not re-read in this pass; HEA 1280 (2025) only added Space Force, PHS and NOAA corps).

Sources

Every figure comes from these documents, mostly the state's own forms, instructions and statutes.

2025 IT-40 booklet p. 16, Schedule 2 line 2: homeowner's residential property tax deduction up to $2,500 ($1,250 MFS) (research/states/itemized.json); 2025 IT-40 booklet: Social Security/RRB deduction, civil service annuity deduction ($16,000 less SS, age 62), Unified Tax Credit for the Elderly tables, Schedule CT-40 county tax instructions, property tax deduction, IRC conformity notehttps://forms.in.gov/Download.aspx?id=16915
2026 rate 2.95% (2.90% in 2027); county rates via Departmental Notice #1https://www.in.gov/dor/resources/tax-rates-and-reports/rates-fees-and-penalties/
2025 Schedule 3 exemptions ($1,000 personal, $1,000 age 65/blind, $500 additional age 65 under $40,000 AGI)https://forms.in.gov/Download.aspx?id=16936
IC 6-3-2-1 (2026 Code): 2.95% for 2026, 2.9% for 2027-2029, triggered 0.05-point cuts from 2030https://iga.in.gov/laws/2026/ic/titles/6#6-3-2-1
IC 6-3-1-3.5(a)(3)-(5),(13) exemptions and homeowner deduction; IC 6-3-3-9 elderly credit tables (2026 Code)https://iga.in.gov/laws/2026/ic/titles/6
Departmental Notice #1 (R47, eff. Oct. 1, 2026): county rates 0.5%-3.00%https://www.in.gov/dor/files/dn01.pdf
DOR Legislative Synopsis 2026: SEA 243 conformity to IRC as of Jan. 1, 2026; TY2026-only tips/overtime/vehicle-loan deductionshttps://www.in.gov/dor/files/legislative-synopsis-2026.pdf
DOR Legislative Synopsis 2025: SEA 451 rate triggers from 2030; SEA 1 local income tax restructuring from 2028https://www.in.gov/dor/files/legislative-synopsis-2025.pdf

Taxtirement's Indiana calculation is also checked against a second, independent implementation on 1,000 random households. How we check our numbers.

See your own years. Taxtirement applies these Indiana rules, and the federal and Medicare rules, to your household for every year of retirement, and shows the calculation behind each number. Coming November 2026 for iPhone, iPad and Mac.

This page summarizes Indiana's 2026 rules as Taxtirement applies them, for education and planning. It isn't tax advice, and it doesn't cover every situation (for example part-year residents, businesses or military-only provisions). Rules change; check the state's current instructions, or a tax professional, before you act. Spotted something wrong? Tell us.