Indiana Income Tax for Business Owners: State Rate and 2026 County Rates
Indiana Income Tax for Business Owners: State Rate and 2026 County Rates
If you own a business in Indiana, your income tax depends on how the business is taxed and where you live. Sole proprietors, partners, LLC members, and S corporation shareholders pay the individual rate on their share of business income, plus a county tax. A corporation, or an LLC that elects corporate treatment, pays the corporate rate. This guide covers the Indiana income tax rate for each, the 2026 county rates, and the points you should confirm with the state before you file or pay.
Indiana Income Tax Rates at a Glance
| Tax | 2026 rate | Who pays it |
|---|---|---|
| Individual adjusted gross income tax | 2.95% | Sole proprietors, partners, LLC members, and S corporation shareholders, on their share of business income |
| Individual adjusted gross income tax (scheduled) | 2.90% in 2027 | Same owners, after the scheduled reduction |
| County income tax | Set by county | Individual residents, added on top of the state rate |
| Corporate adjusted gross income tax | 4.9% | C corporations, and LLCs that elect corporate treatment |
| Franchise tax | None | Indiana does not impose a franchise tax |
The sections below explain each line. Figures come from the Indiana Department of Revenue (DOR) at https://www.in.gov/dor/, and where a figure is not verified, this guide says so.
The Indiana State Individual Rate
Indiana's state income tax on individuals is an adjusted gross income tax at a flat rate. For 2026 the rate is 2.95%. DOR's rate information shows the rate scheduled to fall to 2.90% in 2027. Because the rate is flat, the state portion of your tax does not climb as your business profit rises. The same percentage applies to the first dollar and the last.
Two details trip up most owners. First, 2.95% is only the state portion. County tax is added on top, so the combined rate is higher. Second, the rate applies to adjusted gross income, not to gross receipts or to the profit line on your books. Your federal return, Indiana adjustments, and the way business income is reported determine the base. Your CPA can show you how your business income flows into that base.
Who Pays Which Tax
How your business is organized decides which rate applies to its income.
- Sole proprietors report business income on their individual Indiana return and pay the 2.95% state rate plus county tax.
- Partners pay the individual rate plus county tax on their share of partnership income, which passes through to them.
- LLC members of an LLC that is taxed as a pass-through pay the individual rate plus county tax on their share of income.
- S corporation shareholders report their share of pass-through income on their individual return and pay the individual rate plus county tax.
- C corporations, and LLCs that elect corporate treatment, pay the 4.9% corporate adjusted gross income tax on the entity's income.
Ask your CPA which category applies before you run any numbers. The category changes which rate you use, and the gap between a 2.95% plus county calculation and a flat 4.9% calculation can be large for the same profit.
County Income Tax for 2026
Indiana counties levy a local income tax that is added to the state rate. The county that applies is set by your county of residence on January 1 of the tax year. There is one exception to watch. If you lived outside Indiana on January 1 but had your principal place of work in an Indiana county on that date, you are taxed at that county's rate. Owners who run a business from another state but work in Indiana should check this rule first.
The county rates below are from DOR Departmental Notice #1, which lists county income tax rates effective January 1, 2026. Employers use this chart to withhold county tax from wages. It is not the source of the state rate, which is set separately on DOR's rate pages. The sample rates for eleven counties are:
| County | 2026 county rate | Illustrative sum with 2.95% state rate |
|---|---|---|
| Marion | 2.02% | 4.97% |
| Hamilton | 1.10% | 4.05% |
| Allen | 1.59% | 4.54% |
| Lake | 1.50% | 4.45% |
| St. Joseph | 1.75% | 4.70% |
| Monroe | 2.14% | 5.09% |
| Tippecanoe | 1.28% | 4.23% |
| Delaware | 1.50% | 4.45% |
| Madison | 2.25% | 5.20% |
| Howard | 2.35% (changed for 2026) | 5.30% |
| Vanderburgh | 1.25% | 4.20% |
The last column is a simple addition of the two rates to show how county tax stacks on the state rate. It is not a computed tax bill. Your county tax is calculated on your own income under Indiana's rules, so confirm the method with DOR or your CPA before you rely on any combined figure.
County rates can change in January and October. Before you use any figure in this table, pull the current Departmental Notice #1 from the DOR site at https://www.in.gov/dor/. The figures here are samples for planning, not a complete county list.
Indiana Corporate Income Tax and the Corporate Tax Rate
The Indiana corporate income tax is the corporate adjusted gross income tax. It is a flat 4.9%, and it has been unchanged since July 1, 2021. The corporate tax rate applies to a C corporation's income, and to an LLC that has elected corporate treatment. It is not split by county the way the individual county tax is.
Indiana has no franchise tax. That means the 4.9% corporate adjusted gross income tax is the main income-based rate an entity owes at the state level. Do not confuse this with the county table above, which applies to individual residents. Confirm with DOR how any entity-level return treats the county rates before you assume they apply.
Estimated Tax Payments in Indiana
Income tax on business profit is not always collected through withholding. If you are a sole proprietor, partner, LLC member, or S corporation shareholder, you may need to make indiana estimated tax payments during the year rather than paying everything at filing time. Estimated payments cover the tax on income that no employer withholds from.
This guide does not state estimated payment due dates, form numbers, or the thresholds that decide whether you must pay. We did not verify those for this article. Confirm each of them with the Indiana Department of Revenue before you set a schedule. Your CPA can also show you how Indiana payments line up with the federal estimated payments you already make.
Items to Confirm with the Indiana Department of Revenue
Some questions cannot be settled from the rate pages alone. Put these on your list and confirm each one with DOR:
- Estimated payment due dates, form numbers, and the thresholds that trigger a payment requirement.
- Any 2026 rule about how tips or overtime income is taxed. This guide does not address it, so do not assume either way.
- Whether the county rate you plan to use is the current one, given the January and October update cycle.
- How your entity's tax election changes which rate applies to your business income.
Common Mistakes to Avoid
- Treating 2.95% as your total rate. County tax is added on top of the state rate for individual owners.
- Using the withholding chart as the state rate source. Departmental Notice #1 is the county chart. The state rate comes from DOR's rate pages.
- Assuming your county follows your business address. The county is set by your residence on January 1, with the out-of-state work exception described above.
- Using an old county rate. Rates can change in January and October, so check the current notice each time.
- Choosing an entity without running both scenarios. Compare the pass-through calculation against the 4.9% corporate calculation with your CPA before you elect a classification.
Sales Tax Is a Separate Tax
Indiana's state sales tax rate is 7%. Sales tax is a separate obligation from income tax, with its own registration. If you sell taxable goods, you may need a Registered Retail Merchant Certificate from DOR, which the state's Business Owner's Guide lists at $25. Confirm that fee and the registration steps on the DOR site before you apply. Indiana does not have one single comprehensive business license, so profession-specific licenses and local permits may apply to your business as well.
Steps for Business Owners
- Confirm your entity's tax treatment with your CPA. Know whether the business is a pass-through or is taxed as a corporation.
- If you are an individual owner, confirm your county of residence on January 1. If you lived out of state that day but worked in an Indiana county, confirm that workplace county.
- Pull the current Departmental Notice #1 from https://www.in.gov/dor/ and note the rate for your county.
- Estimate your Indiana tax on expected business income. Use 2.95% plus your county rate for pass-through income, or 4.9% for corporate income. If you plan beyond 2026, use 2.90% for 2027.
- Confirm estimated payment requirements with DOR and set a payment schedule that matches your income pattern.
Official Resources
- Indiana Department of Revenue, rates, notices, and estimated payments: https://www.in.gov/dor/
- Indiana Secretary of State, Business Services Division: https://www.in.gov/sos/business/
- INBiz, the state online filing portal: https://inbiz.in.gov/
- Indiana Small Business Development Center, free advising: https://isbdc.org/
Disclaimer: This guide is informational only. It is not legal or tax advice. Your tax treatment depends on your facts, your entity type, and your filing history. Consult a qualified CPA or tax attorney before you make decisions based on these rates or on any county figure.