The Indiana retirement income tax skips Social Security and now exempts military retirement entirely, but it taxes most other retirement income at a low flat rate. That flat rate, 2.95 percent for tax year 2026 (down from 3 percent in 2025) and scheduled to keep falling to 2.90 percent in 2027, is one of the lowest in the country, so even fully taxed pension and account income lands lightly. The wrinkle is the county income taxes layered on top, which vary by where you live. Indiana's tax is best understood as a low, broad tax with two carve-outs: military pay and a modest civil-service deduction.

This guide breaks down how Social Security, military retirement, civil-service pensions, and IRA or 401(k) income are each treated, plus how county taxes fit in.

In This Guide

Indiana Retirement Income Tax at a Glance

Indiana keeps its base tax low and applies it broadly, then carves out two specific breaks. Social Security is fully out. Military retirement is fully out. A civil-service pension deduction trims federal nonmilitary pensions. Most other income is taxed at the flat rate plus a county rate. The table below lays out each source.

Income type Treatment Limit or amount Notes
Social Security Fully exempt (deducted) 100% of benefits Railroad Retirement also deducted
Military retirement Fully exempt 100% (2022 and later) n/a
Civil-service (federal) pension Deduction (62+) Up to $16,000 Reduced by Social Security and Railroad Retirement
IRA and 401(k) income Taxable n/a Flat rate plus county tax
Senior-specific exclusion Limited to the deductions above See above County taxes still apply

Indiana has a flat state income tax of 2.95 percent for tax year 2026 (down from 3 percent in 2025), scheduled to keep falling to 2.90 percent in 2027, and counties levy their own additional income taxes. Whatever retirement income falls outside the exemptions above is taxed under that combined rate.

Indiana Retirement Income Tax: How It Works

Indiana does not use a graduated schedule or a broad senior exemption. The Indiana Department of Revenue deducts Social Security and Railroad Retirement from Indiana income, fully exempts military retirement pay, and otherwise taxes retirement income at the flat state rate. On top of the state rate, each county sets its own income tax, so two retirees with identical income can owe slightly different totals depending on their county.

The system rewards two groups in particular: military retirees, whose pay is now 100 percent exempt, and certain federal civil-service retirees, who get a deduction. For everyone else, including most retirees living on IRA and 401(k) savings, the practical question is simply the size of the combined state-plus-county rate, which is low by national standards.

Social Security Is Not Taxed in Indiana

Indiana does not tax Social Security or Railroad Retirement benefits; they are deducted from Indiana income. There is no income test, so every Indiana retiree keeps the full amount of these benefits regardless of other income.

This is the simplest piece of the Indiana retirement income tax. Because these benefits are subtracted before the flat tax applies, they never add to the income that county and state taxes are calculated on.

Military Retirement Is Fully Exempt (2022 and Later)

Indiana fully exempts military retirement pay for tax year 2022 and later. This is a 100 percent exemption with no dollar cap, which puts Indiana among the more military-friendly states for retirees.

If your retirement income is largely military pay plus Social Security, Indiana may tax almost none of it. The exemption applies to the military retirement pay itself; other income, such as a civilian second-career pension or IRA withdrawals, is treated under the general rules below.

Civil-Service Pensions Get a Deduction; IRAs and 401(k)s Are Taxed

Federal nonmilitary (civil-service) pensions get a deduction of up to $16,000 for taxpayers 62 and older, but that deduction is reduced by Social Security and Railroad Retirement income. So a civil-service retiree who also draws a meaningful Social Security benefit will see the $16,000 figure shrink, sometimes to little or nothing once benefits are counted. Many civil-service retirees expect the full $16,000 and find it nearly gone after Social Security is counted, so estimate this deduction before you count on it.

Private pensions, IRA withdrawals, and 401(k) distributions do not get a special break; they are taxable at the flat state rate plus the county rate. The saving grace is the size of that rate. At 2.95 percent for tax year 2026 (and falling), the state portion is modest, though the county add-on raises the effective total. For most retirees living on account savings, Indiana taxes the income but at a low overall rate.

Roth IRA withdrawals are the one account exception worth flagging: qualified Roth distributions are already excluded from your federal taxable income, and because Indiana builds its tax on that federal figure, they generally are not taxed by the state either. Confirm your own distributions qualify with the Department of Revenue before relying on this.

If you are weighing how much to draw from these accounts to cover care, retirement accounts for care walks through the tradeoffs.

What Your Indiana Tax Bill Looks Like

The practical takeaway is that Indiana is a low-tax state for retirees, with outright exemptions for Social Security and military pay and a low flat rate on everything else. The county tax is the variable most people overlook, and you can look up your county's exact rate in the Indiana Department of Revenue's Departmental Notice #1.

Picture a single retiree, age 67, with $24,000 in Social Security and $40,000 in IRA withdrawals. The Social Security is deducted entirely. The $40,000 IRA draw is taxable; at the flat 2.95 percent state rate for 2026, the state tax would be about $1,180, with the county income tax adding a further amount that depends on the county. These numbers are hypothetical, exclude county tax and any other deductions, and are meant only to show how the flat rate works, not to predict your bill.

Your county's rate, the military exemption, and how Social Security shrinks the civil-service deduction are the details worth confirming with the Indiana Department of Revenue or a tax professional before you plan withdrawals. If retirement savings are part of how you will fund care, building a senior care funding plan is a useful next step.

Not sure how county taxes change your Indiana bill? Chat with Brevy's care navigator to sort out your situation.

Frequently Asked Questions

Does Indiana tax Social Security?

No. Indiana deducts Social Security and Railroad Retirement benefits from Indiana income, so they are fully exempt with no income limit.

Does Indiana tax military retirement?

No. Military retirement pay is 100 percent exempt for tax year 2022 and later, with no dollar cap.

Does Indiana tax 401(k) and IRA withdrawals?

Yes. Private pensions, IRA withdrawals, and 401(k) distributions are taxable at Indiana's flat state rate of 2.95 percent for 2026 (3 percent for 2025) plus the county income tax. There is no broad senior exemption for this income.

How big is Indiana's civil-service pension deduction?

Up to $16,000 for federal nonmilitary pensions at age 62 and older, but it is reduced by Social Security and Railroad Retirement income. Benefits can shrink the deduction substantially.

What is Indiana's income tax rate on retirement income that gets taxed?

A flat 2.95 percent for tax year 2026 (3 percent for 2025, scheduled to keep falling to 2.90 percent in 2027), plus a county income tax that varies by where you live.

Next Steps

If you are retired in Indiana, start by separating the exempt income from the rest, then factor in your county.

  • Confirm the Social Security exemption applies; it carries no income limit.
  • Check the military exemption if any of your income is military retirement pay.
  • Estimate the civil-service deduction carefully, since Social Security reduces the $16,000.
  • Add your county income tax on top of the 2.95 percent state rate (2026) for taxable income.
  • Look up your county's rate in the Indiana Department of Revenue's Departmental Notice #1, since the county tax is added on top of the state rate.

If you are mapping out how to pay for care, how to pay for senior care covers the main routes.

Learn More

FinancialHow to Pay for Senior Care in IndianaHow to pay for senior care in Indiana in 2026: real costs, Medicare's limits, Medicaid PathWays, VA Aid and Attendance, and long-term care insurance. FinancialIndiana Senior Property Tax ReliefIndiana's 2025 law replaced the old Over-65 Deduction with new credits. Here's who qualifies, what each credit pays, and how to apply by January 15. FinancialHow Each State Taxes Retirement IncomeRetirement income tax varies enormously by state. Learn how states treat Social Security, pensions, and IRA or 401(k) money, and find your state's rules. FinancialHow to Pay for Senior CareHow to pay for senior care: what it costs nationally and how Medicaid, Medicare, VA benefits, and private pay each fit. Who qualifies, what's covered, in 2026. FinancialBuilding a Senior Care Funding PlanA step-by-step plan to pay for senior care: estimate the cost, inventory income and assets, find the payers you qualify for, sequence them, and get free help. FinancialRetirement Accounts for CareHow to use a retirement account to pay for senior care: the tax on IRA and 401(k) withdrawals, the early-penalty exceptions, RMDs at 73, and the tax-spike trap.

Find personalized help making sense of the Indiana retirement income tax at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.

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Brevy Care Team

Expert eldercare guidance from Brevy's team of healthcare professionals and researchers.