The Indiana retirement income tax skips Social Security and makes military retirement income fully deductible, but no deduction on the state's list names private pensions or IRA and 401(k) income. The state's individual income tax rate is 2.95 percent for 2026 and adjusts to 2.90 percent in 2027. Indiana counties also have their own income tax rates, so check the rate for the county you live in. The list also carries a deduction of up to $16,000 for federal civil service annuity income, open at 62 or, for a surviving spouse, at any age.

This guide breaks down how Social Security, military retirement, federal civil service annuities, and IRA or 401(k) income are each treated, plus where county rates come in.

In This Guide

Indiana Retirement Income Tax at a Glance

Indiana's Department of Revenue publishes a list of deductions, and a few of them reach retirement income. Social Security is fully out. Military retirement is fully out. A deduction of up to $16,000 covers federal civil service annuity income, and a separate deduction reaches disability retirement income. No deduction on the list names private pensions, IRA withdrawals, or 401(k) distributions. The table below lays out each source.

Income type Treatment Limit or amount Notes
Social Security Fully exempt (deducted) All benefits Railroad Retirement benefits issued by the Railroad Retirement Board are also deducted
Military retirement Fully deductible The entire amount (2022 and later) Covers survivor's benefits as well as the retiree's own military retirement income
Federal civil service annuity Deduction: at least 62 at the end of the tax year, or a surviving spouse at any age For each qualifying individual, the lesser of the taxable civil service annuity income or $16,000 Reduced by all Social Security and tier 1 Railroad Retirement income that individual received
Disability retirement income Disability Retirement Deduction Amount not stated on the DOR deductions page, which says to view Schedule IT-2440 Must have been permanently and totally disabled at retirement and retired on disability
Private pension, IRA, and 401(k) income No deduction on the DOR's list names it n/a State rate is 2.95 percent for 2026; counties have their own rates
Income of a Medicaid recipient living in a care facility Human Services Tax Deduction is on the DOR's list Amount not stated on the DOR deductions page The page does not say which income it applies to

Indiana's individual adjusted gross income tax rate is 2.95 percent for 2026, adjusting to 2.90 percent in 2027, and Indiana counties have their own income tax rates. The Department of Revenue says county rates may be adjusted in January and October.

Indiana Retirement Income Tax: How It Works

Indiana works from a list: as the Indiana Department of Revenue puts it, Indiana deductions reduce the amount of taxable income, and you check the list to see whether you are eligible to claim any of them. Social Security and Railroad Retirement benefits issued by the Railroad Retirement Board are deducted, and military retirement income and survivor's benefits are deducted in full. No deduction on that list names private pensions, IRA withdrawals, or 401(k) distributions. Indiana counties have their own income tax rates as well, so look up the rate for the county you live in.

The list favors two groups in particular: military retirees and their survivors, whose retirement income and survivor's benefits are deductible in their entire amount, and certain federal civil service annuitants and their surviving spouses, who get a deduction of up to $16,000. For everyone else, including most retirees living on IRA and 401(k) savings, the numbers to know are the 2.95 percent state rate for 2026 and the rate your county sets.

Social Security Is Not Taxed in Indiana

Indiana does not tax Social Security or Railroad Retirement benefits issued by the Railroad Retirement Board; they are deducted from Indiana income.

This is the simplest piece of the Indiana retirement income tax. Because these benefits are deducted from Indiana income, they do not add to the income the state rate applies to.

Military Retirement Is Fully Exempt (2022 and Later)

Indiana makes military retirement income fully deductible for tax year 2022 and later. The deduction equals the entire amount, and it covers survivor's benefits as well as the retiree's own military retirement income.

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

Federal Civil Service Annuities Get a Deduction; No Listed Deduction Names IRAs or 401(k)s

Federal civil service annuity income gets a deduction of up to $16,000 for each qualifying individual: the lesser of the taxable civil service annuity income included in your federal adjusted gross income or $16,000. You may qualify if your federal return includes federal civil service annuity income and you are at least 62 at the end of the tax year or a surviving spouse, and a surviving spouse faces no minimum age requirement for tax year 2015 and later. That second route matters: a widow of 58 drawing her husband's federal civil service annuity can qualify, even though the age-62 rule would seem to shut her out. The deduction is tied to federal civil service annuity income, so do not read it as covering a state or local government pension.

The deduction is then reduced by all Social Security income and tier 1 Railroad Retirement income received by the qualifying individual. So a federal civil service annuitant 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 expect the full $16,000 and find it nearly gone after Social Security is counted, so estimate this deduction before you count on it.

No deduction on the Department of Revenue's list names private pensions, IRA withdrawals, or 401(k) distributions. Plan as though that income stays in your Indiana taxable income unless a tax professional tells you otherwise. The state rate is 2.95 percent for 2026, adjusting to 2.90 percent in 2027, and your county has its own rate.

Two other deductions on the list are worth knowing about. The first is Indiana's Disability Retirement Deduction. You may qualify if you were permanently and totally disabled at the time you retired, retired on disability before the end of the year, and received disability retirement income in the tax year. The Department of Revenue's deductions page states those conditions but not the deduction amount, and it tells a taxpayer who meets them to view Schedule IT-2440, so read the schedule before you count on a figure.

The second is the Human Services Tax Deduction, which the list carries for Medicaid recipients living in a hospital, skilled nursing facility, intermediate care facility, licensed county home, licensed boarding or residential home, or certified Christian Science facility. The page does not state its amount or which income it applies to. If your parent is on Medicaid in a nursing home, ask the Department of Revenue or a tax professional whether it applies before you file.

Roth IRA withdrawals are worth a separate question. Ask the Department of Revenue or a tax professional how Indiana treats qualified Roth distributions before you plan around them.

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 Social Security and military retirement income come out of Indiana income entirely, and the state rate on what stays in your taxable income is 2.95 percent for 2026. The county rate is the variable most people overlook, so check yours with the Indiana Department of Revenue, starting from its rates page.

Picture a single retiree, age 67, with $24,000 in Social Security and $40,000 in IRA withdrawals. The Social Security is deducted entirely. No deduction on the Department of Revenue's list names IRA withdrawals, so suppose the full $40,000 stays in Indiana taxable income: at the 2.95 percent state rate for 2026, that works out to about $1,180, and the county has its own rate. These numbers are hypothetical, leave out county tax and any other deductions, and are meant only to show how the state rate works, not to predict your bill.

Your county's rate, the military deduction, and how Social Security shrinks the civil service annuity 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 issued by the Railroad Retirement Board from Indiana income, so Indiana does not tax them.

Does Indiana tax military retirement?

No. For tax year 2022 and later the deduction equals the entire amount of military retirement income and survivor's benefits, so both are fully deductible.

Does Indiana tax 401(k) and IRA withdrawals?

No deduction on the Indiana Department of Revenue's list names private pensions, IRA withdrawals, or 401(k) distributions, so plan as though that income stays in your Indiana taxable income. The state's individual income tax rate is 2.95 percent for 2026 (2.90 percent in 2027), and counties have their own income tax rates. If the account holder is a Medicaid recipient living in a care facility, ask about the Human Services Tax Deduction; the Department of Revenue's page does not state its amount or which income it applies to.

How big is Indiana's federal civil service annuity deduction?

For each qualifying individual, it is the lesser of the taxable federal civil service annuity income included in federal adjusted gross income or $16,000. You may qualify if your federal return includes federal civil service annuity income and you are at least 62 at the end of the tax year, or if you are a surviving spouse, in which case there is no minimum age requirement for tax year 2015 and later. The deduction is then reduced by all Social Security and tier 1 Railroad Retirement income the qualifying individual received, which can shrink it substantially.

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

Indiana's individual adjusted gross income tax rate is 2.95 percent for 2026, adjusting to 2.90 percent in 2027. Counties have their own income tax rates, which the Department of Revenue says may be adjusted in January and October.

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 deduction applies.
  • Check the military deduction if any of your income is military retirement income or a military survivor's benefit; both are fully deductible.
  • Estimate the civil service annuity deduction carefully if your federal return includes federal civil service annuity income, since Social Security and tier 1 Railroad Retirement income reduce the $16,000. If you are a surviving spouse, check it even if you are under 62: there is no minimum age on that route.
  • Know the state rate for income that stays taxable: 2.95 percent for 2026, adjusting to 2.90 percent in 2027.
  • Look up your county's rate. Counties have their own income tax rates, and the Department of Revenue says they may be adjusted in January and October. Start from the Department's rates page.

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 converted the old Over-65 Deduction to a credit. Here's who qualifies, what each credit pays, and how to apply by January 15. FinancialHow Each State Taxes Retirement IncomeNine states tax no retirement income, and four more exempt qualifying retirement plan withdrawals. See how every state taxes Social Security, pensions and IRAs. 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 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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