INDIANAPOLIS — Three tax changes are taking effect at the state level as the new year starts Sunday, although the impact to your wallet will likely be minor.
Due to bills passed by the Indiana General Assembly in its 2022 session, Hoosiers will see a slight reduction in the state income tax while there will also be a change in deductions on property tax bills.
The information was compiled by The Tax Foundation, a national nonprofit studying tax policy across the U.S.
The first change on tap comes in the form of a state income tax reduction, as lawmakers approved reducing the state's income tax rate as part of a large tax bill this past spring.
The tax cut will potentially reduce the state's flat income tax rate from 3.23% to 2.9% by 2029 if conditions are met. Next year will be the first stair-step down in the rate, reducing to 3.15%.
Indiana's median household income is currently $61,944, according to U.S. Census data, meaning incomes taxes for a married couple at the income would reduced from $2,000.80 to $1,951.24, a savings of $49.56 per year.
The second change will remove the $3,000 mortgage deduction from property taxes, but state lawmakers opted to increase the standard homestead deduction from $45,000 to $48,000, meaning borrowers won't see any change in their tax bills.
Homeowners who own their primary residence outright, however, will see a savings from that change. The savings will vary depending on home value and local tax rate, but, for example, a person with a $200,000 in Wayne Township in Noble County might save $40 from the higher standard deduction.
Also, lawmakers increased the maximum home value for the 65 and older deduction up from $200,000 to $240,000, meaning more seniors will be able to take advantage of that deduction, which is worth either half of the remaining assessed value or $14,000, whichever is less.
Lastly, in a move that will only impact gamblers, Indiana is phasing out its add-back of the federal income tax deduction allowed for wagering taxes, with the add-back decreasing from 50% to 37.5% of the federal amount.
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