The local income tax rates in six of Indiana's 92 counties will increase Jan. 1 even as the state income tax rate drops again in accordance with a 2023 tax cut statute.
According to the Indiana Department of Revenue, residents of Floyd, Gibson, Jay, Monroe, Rush and Switzerland counties will see more money taken out of their paychecks to cover the cost of county government services in the new year.
The new local income tax rates in those counties are Floyd 1.89%, up from 1.39%; Gibson 1.3%, up from 0.9%; Jay 2.5%, up from 2.45%; Monroe 2.14%, up from 2.035%; Rush 2.15%, up from 2.1%; and Switzerland 1.45%, up from 1.25%.
Records show three additional Indiana counties already hiked their income tax rate on Oct. 1: Fayette 2.82%, up from 2.57%; Fulton 2.88%, up from 2.68%; and Henry 2.02%, up from 1.8%.
No changes are slated for the local income tax rates in Northwest Indiana that currently stand at 1.5% in Lake County, 0.5% in Porter County, 1.45% in LaPorte County, 1% in Newton County, and 2.864% in Jasper County.
But those rates, and local income tax rates across Indiana, might be headed dramatically higher if Republican Gov.-elect Mike Braun succeeds next year in enacting his property tax reduction plan at the Republican-controlled General Assembly.
Braun has proposed reverting residential property tax bills to their 2021 amount, regardless of any subsequent increase in the assessed value of the home, as well as increasing the value of residential property tax deductions and capping future property tax revenue growth.
Those changes likely will result in a shift of the property tax burden onto rental, business, industrial and agricultural property owners, or higher local income tax rates if counties look to other ways of replacing the lost property tax revenue from owner-occupied homes.
Though any local income tax increases will be partially offset by continuing reductions in the state's 3.05% income tax rate that's set to fall to 3% on Jan. 1, 2025, to 2.95% on Jan. 1, 2026, and to 2.9% on Jan. 1, 2027, according to House Enrolled Act 1001 (2023).
The rate cut means a Hoosier worker earning $50,000 a year will pay $1,500 in state income tax next year, instead of $1,525 — a savings of $25, or about $1 per biweekly paycheck.
Hiking that same worker's county income rate by 1% would take an extra $500 a year out of the worker's wages, or about $20 from each check.
Illinois has a 4.95% state income tax rate and no local income taxes. The combination of the two in Indiana means most Hoosiers are paying more of their earnings in state and local income tax than Illinois residents do.
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