The local income tax rate 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 Carroll, Grant, Greene, Howard, Shelby and Union 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 Carroll 2.4733%, up from 2.2733%; Grant 2.75%, up from 2.55%; Greene 2.35%, up from 2.15%; Howard 2.35%, up from 1.95%; Shelby 1.7%, up from 1.6%; and Union 2.75%, up from 2%.
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.
Though that's likely to change in the years ahead as Senate Enrolled Act 1 (2025) is implemented.
The new law, approved in April by the Republican-controlled General Assembly and Republican Gov. Mike Braun, provides a negligible property tax break to Indiana homeowners beginning in 2026, along with significant, long-term property tax cuts for Indiana businesses.
To make up some of the lost revenue, the statute permits eligible municipalities in 2028 to start charging residents a new income tax rate of up to 1.2% — on top of the state and county income taxes already being deducted from workers' paychecks.
Those tax hikes will be partially offset by ongoing reductions in the state's 3% income tax rate that's set to fall to 2.95% on Jan. 1 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 $1,475 in state income tax next year, instead of $1,500 — a savings of $25, or about $1 per biweekly paycheck.
Charging that same worker a new municipal income tax rate of 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, or soon may be, paying more of their earnings in state and local income tax than Illinois residents do.
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