Indiana Payroll Taxes and Withholding Guide (2026)

What Makes Indiana Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, employer unemployment taxes, and any local wage taxes. Indiana sits toward the simpler end for the state tax but has a local layer that reaches every worker.

Indiana's state tax is a flat rate, 2.95% for 2026, applied after WH-4 exemptions with no standard deduction. What sets Indiana apart is that the local income tax is universal: every one of the 92 counties levies its own income tax, and unlike a Michigan city tax that only some workers pay, an Indiana county tax appears on every resident's paycheck. The county tax is withheld on the same exemption-reduced base as the state tax, so both Indiana lines move together. The federal baseline behind all of this is explained in the how payroll taxes work guide.

Employee Withholding Overview in Indiana

An Indiana employee sees federal taxes, a flat state tax, and a county tax. There is no employee unemployment line and no state disability line. The deductions fall into three groups: federal taxes, Indiana state income tax, and the county income tax.

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to Indiana is that the state line is simple and flat, while the county line, though also flat, depends entirely on the county you lived in on January 1, and there is no employee unemployment contribution at all.

How Is Indiana State Income Tax Withheld?

Indiana individual income tax is a flat rate, and that same rate is the withholding rate. Unlike Georgia or North Carolina, Indiana applies no standard deduction; the only reduction is the WH-4 exemptions. Employers follow the method in the Indiana Department of Revenue's Departmental Notice #1: subtract the prorated exemption amounts, then apply the flat rate to the remainder. The rate is on a legislated glide path down toward 2.90%.

Because the rate is flat, there are no brackets to walk. The federal Form W-4 sets federal withholding, covered in the W-4 withholding explained guide, while Form WH-4 sets the Indiana exemption count and the employee's county. The withholding rate equals the income tax rate, and supplemental wages use the same flat rate rather than a separate schedule.

Indiana Withholding Exemptions (Form WH-4)

Form WH-4 is Indiana's version of the federal W-4, and it is the lever an Indiana employee has over state and county withholding. It sets the exemption count and, importantly, the county of residence used for the county tax.

Three Exemption Tiers

Indiana's exemptions are worth different amounts depending on the tier:

The employer prorates the total to the pay period and subtracts it before applying both the state rate and the county rate. There is no separate standard deduction. If you do not file a Form WH-4, the employer withholds with zero exemptions, which produces the highest withholding.

County of Residence

Form WH-4 also captures the county you lived in and the county you worked in as of January 1. That residence county sets your county tax rate for the whole year. To see how a given exemption count and county rate change take-home pay, use the Indiana paycheck calculator, which asks for all three WH-4 exemption tiers and your county directly.

Indiana County Income Taxes

This is the layer that defines Indiana payroll. Unlike Michigan, where only about two dozen cities levy a local income tax, all 92 Indiana counties levy one, so every Indiana resident pays a county tax on top of the state tax. The county tax is withheld on the same exemption-reduced base as the state tax, so there is no separate county allowance.

The rate you pay is fixed by the county you lived in on January 1, not where you work. If you move from a low-rate county to a high-rate county in March, your rate does not change until the next January 1. A person who lives out of state on January 1 but works principally in an Indiana county uses that work county's rate. Because the full list of 92 counties changes from year to year, the Indiana paycheck calculator carries every county rate and lets you pick yours, and its methodology section shows the complete table.

Employer Payroll Obligations in Indiana

Indiana employers carry the federal employer taxes plus State Unemployment Insurance through the Department of Workforce Development (DWD). The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA). On top of that, Indiana adds the employer DWD contribution. There is no employee unemployment contribution to withhold. Employers also remit the withheld state and county income tax together to the Department of Revenue.

The Indiana DWD taxable wage base is $9,500 per employee, so the employer unemployment tax stops once an employee's year-to-date wages pass $9,500. Most new employers are assessed a 2.5% rate for their first four calendar years, then move to an experience-rated (merit) rate; the maximum delinquent rate is 9.4%. These are employer costs and are never deducted from employee pay. The combined cost-to-hire can be modeled with the employer payroll tax calculator.

Indiana Has No Employee Unemployment Deduction

A handful of states, including Pennsylvania and New Jersey, take a small unemployment contribution directly from employee wages. Indiana is not one of them. The entire cost of Indiana unemployment insurance falls on employers through the DWD, so there is no employee unemployment line on an Indiana pay stub at all.

This matters most for workers who move to Indiana from a state that does deduct employee unemployment and expect to see the same line. In Indiana that line simply does not exist, and its absence is correct, not a payroll error. Indiana also has no state-run disability insurance or paid-family-leave payroll tax deducted from wages, unlike California or New York, so the mandatory deductions on an Indiana stub are federal taxes, the flat state income tax, and the county income tax.

Indiana Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. Many states apply a special flat supplemental rate to these payments. Indiana uses its ordinary flat withholding rate.

• Indiana state income tax on supplemental wages: the same flat 2.95% rate that applies to regular wages.
• County income tax: the same county rate applies to supplemental wages.
• Employee unemployment: none, on supplemental wages or regular wages.

Because the state and county rates are already flat, there is no separate Indiana supplemental schedule to look up. Federal income tax withholding on supplemental wages is a separate calculation set by the IRS, and Social Security and Medicare still apply under their own rules. For the federal supplemental math, use the Bonus Tax Calculator.

Indiana Filing and Payment Frequency

Indiana employers report and remit withheld state and county income tax through INTIME, the Department of Revenue's online portal, using Form WH-1 on a monthly, early-monthly, or other schedule based on the amount withheld, and reconcile annually on Form WH-3 with the W-2 information. Because the county tax is remitted together with the state tax on the same return, employers report the correct county code for each employee. The federal deposit schedule is covered separately in the payroll tax deadlines guide.

Unemployment tax is reported and paid separately from income tax withholding, on a quarterly basis through the DWD Employer Self Service (ESS) system. New employees must be reported to the Indiana New Hire Reporting Center within 20 days of the hire date.

How Take-Home Pay Works in Indiana

The calculation sequence runs from gross pay down to net pay. Because Indiana income tax begins with federal adjusted gross income and the county tax shares the state base, the same pre-tax deductions that reduce federal wages also reduce both Indiana lines before the WH-4 exemptions are applied.

1. Start with gross wages for the pay period.
2. Subtract federal pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for federal and both Indiana taxes.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Subtract the per-period share of the WH-4 exemptions ($1,000 / $1,500 / $3,000 tiers), then apply the flat state rate and the county rate to the same remainder.
5. Subtract Social Security (6.2%) and Medicare (1.45%) on FICA wages (gross less Section 125 medical). The remainder is net pay; there is no employee unemployment line.

To see exact figures for a specific salary, exemption count, county, and pay frequency, use the Indiana paycheck calculator or the general take-home pay calculator for a full pre-tax benefits stack.

What Indiana Employees Should Check on a Pay Stub

• IN state tax line: Confirm Indiana income tax is withheld at 2.95% (2026) on wages after the WH-4 exemptions.
• County tax line: Confirm a county line is present at your county-of-residence rate as of January 1, on the same base as the state tax. A missing county line means a balance due at filing.
• Correct county: Verify the county the employer keyed matches where you lived on January 1, since that controls the rate for the whole year.
• No employee unemployment line: Indiana does not deduct employee unemployment, so there should be no such line.
• FICA: Confirm Social Security at 6.2% (until $184,500 of wages for 2026) and Medicare at 1.45% with no cap.

What Indiana Employers Should Verify Before Running Payroll

• State registration: Confirm active accounts for Indiana withholding (DOR, via INTIME) and unemployment (DWD, via ESS), and check the annual DWD merit rate determination.
• WH-4 on file: Collect a current Form WH-4 from each employee, including the county of residence and county of work as of January 1; without one, withhold with zero exemptions.
• Current rate: Confirm the 2.95% state rate for 2026 and each employee's correct county rate are set in the payroll system; a stale rate under- or over-withholds.
• County codes: Confirm each employee's county code so the state and county tax remit correctly on the same return.
• DWD settings: Confirm the $9,500 wage base and the assigned employer contribution rate are set in the payroll system.
• New hire reporting: Report each new worker to the Indiana New Hire Reporting Center within 20 days.

Indiana Payroll Quick Facts (2026)

Frequently Asked Questions