Mostly taxed
How Indiana taxes retirement income
Indiana does not tax Social Security, but it taxes nearly all other retirement income at its flat state rate of about 3%, plus the county income tax where you live, which typically adds 1% to 3%. That covers Indiana Public Retirement System (INPRS) pensions for teachers and public workers, pensions from other states, company pensions, and withdrawals from 401(k), 403(b), 457(b) and IRA accounts.
There are two narrow breaks. Retirees 62 and older can deduct up to $16,000 of a federal civil service annuity, reduced by any Social Security received. Military retirement pay is fully deductible.
Because both the state and county rates are low and flat, the cost is predictable. A retired Indiana teacher with a $30,000 pension and a county rate of 1.5% pays roughly 4.5% on the pension after Indiana’s small personal exemptions, or about $1,300 a year.
Questions
Does Indiana tax teacher pensions?
Yes. INPRS teacher pensions are taxed at the state rate plus your county’s income tax rate.
Does Indiana tax Social Security?
No.
Are there any retirement deductions?
Only for federal civil service annuities (up to $16,000 at 62, minus Social Security) and military retirement pay.