Indiana State Taxes: 2023 Update

(February 2025)

In This Article

Wondering how Indiana’s tax laws changed in 2023? You’ve come to the right place. This guide breaks down the essential updates you need to know, including changes to the individual income tax rate, property tax deductions, and other important tax-related matters. Whether you’re a taxpayer, business owner, or simply curious about the latest tax landscape in Indiana, this information is crucial for understanding your financial obligations.

1. Individual Income Tax Changes

The individual income tax rate in Indiana receives a slight reduction for the 2023 tax year. Previously set at 3.23%, the state income tax rate has been gradually decreasing as part of a long-term plan to provide relief to residents. For 2023, the individual income tax rate is set at 3.15%. This decrease seems minor, but it can result in meaningful savings over time based on your income. To benefit from this change, you want to ensure that your withholding rates reflect the new tax rate. If your employer is yet to update your withholdings, you are likely overpaying throughout the year.

Additionally, there have been some adjustments to Indiana’s deductions and credits. For example, the earned income tax credit (EITC) slightly increases to better support low- to moderate-income families.

If you fall within this income bracket, it’s essential to review the new eligibility requirements and updated figures to ensure you claim the credit.

2. Property Tax Modifications

Property taxes in Indiana are another area that experienced updates in 2023. One of the key changes is the increase in the homestead deduction, which now allows you as a homeowner to reduce your taxable property value by a higher amount. The standard homestead deduction increases, providing more relief for you. If you own a primary residence, you need to make sure to apply for this deduction to reduce your property tax bill. Additionally, Indiana has introduced caps on property tax increases to ensure that tax hikes remain reasonable.

These caps help protect you from unexpected spikes in your tax bills, particularly as property values rise across the state. However, if you recently make improvements to your property or complete a renovation, it’s important to be aware that your assessed value can increase, potentially affecting your overall property tax liability. If you run a business, there are also changes to the business personal property tax you need to be aware of. Depending on the size of your business, but if you manage a small enterprise, you are now eligible for an exemption from this tax if the total value of your personal property falls below $40,000.

3. Sales Tax Updates

While Indiana’s state sales tax rate remains consistent at 7%, there are some updates for 2023 that you need to be conscious of, whether you’re a consumer and business owner. The state expands the scope of goods and services that are subject to sales tax, particularly in areas like digital goods and online sales. If you are an online seller or engage in digital commerce, these changes directly impact how you collect and remit sales tax.

As an individual, this means that you see sales tax applies to more of your online purchases than before. Services like streaming subscriptions, digital downloads, and certain software-as-a-service (SaaS) products are now taxable. If you notice a slight increase in the total cost of these items, don’t let it be a surprise. Do you sell goods or services online? You need to ensure you are complying with these new rules, especially if you operate across state lines. Indiana follows the South Dakota v. Wayfair decision, meaning you must collect out-of-state sales tax if you exceed a certain threshold of sales within the state.

4. Corporate Tax Adjustments

Running a business in Indiana? There’s good news when it comes to corporate taxes. The corporate income tax rate has been gradually decreasing over the past few years, and in 2023 it stands at 4.9%, down from 5.25% in previous years. This reduction is part of Indiana’s effort to attract and retain businesses by offering a more competitive tax environment.

If you own or operate a business in Indiana, you need to account for this lower tax rate in your financial planning. Additionally, if you make investments in certain areas of the state, you can be eligible for further tax credits and deductions, such as the Economic Development for a Growing Economy (EDGE) credit, which incentivizes job creation and investment in economically distressed areas or designated growth zones.

Furthermore, Indiana implements tax relief for small businesses by raising the exemption threshold for the business personal property tax, as you read earlier. This is particularly beneficial if you manage an enterprise with limited capital assets. The goal is to help you reduce your tax liability.

Other Tax-Related Developments

Aside from the major categories of taxes, there are a few other noteworthy changes and developments in Indiana’s tax laws for 2023. One such change is the introduction of a tax amnesty program, allowing you (or your business) to settle your debt without facing penalties or interest if you owe back taxes.

This is a limited-time opportunity, so if you have outstanding tax obligations, it’s wise to take advantage of this program before the window closes.

Indiana also expands its energy-related tax credits. You’re lucky if you invest in energy-efficient appliances or renewable energy sources, such as solar panels. You’re eligible for tax credits to offset the costs of these investments. If you’re considering making your home or business more energy-efficient, be sure to review the updated eligibility criteria for these credits. Lastly, Indiana makes strides in modernizing its tax administration processes. The state introduces more digital options for filing and paying taxes, making it easier for you to stay compliant.

Recap

In 2023, Indiana introduced several tax updates that you need to be aware of. The individual income tax rate reduces to 3.15%, offering you a slight relief, while property tax modifications include an increase in the homestead deduction and caps on property tax hikes. On the business side, the sales tax now applies to more digital goods and online transactions, so you are going to see this change in your purchases. Additionally, the corporate income tax rate drops to 4.9%, making Indiana a better place to launch your business, especially with expanded tax credits and deductions if you’re investing in key areas of the state.

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