Indiana tax cuts: Significant changes took effect in 2024 — what to know
INDIANAPOLIS - Residents of Indiana should know about changes to the state's tax policy that took effect on Jan. 1, 2024.
House Bill 1001 accelerates previously planned rate cuts. The individual income tax rate has been reduced from 3.15 percent to 3.05 percent in 2024, with further reductions to 3.0 percent in 2025, 2.95 percent in 2026, and 2.9 percent in 2027 and beyond.
These changes align with broader nationwide trends, as 33 other states have undergone notable tax modifications this year. Indiana and the others are looking to prioritize stability, pro-growth, and competitiveness in their tax codes, according to an analysis from the Tax Foundation.
The tax reforms are in response to changing economic conditions, including pandemic recovery, revenue surpluses, and adjustments to inflation.
Last year, budget leaders in the Republican-dominated Indiana Senate said they wanted to be cautious about any tax changes with slower growth of state revenue expected in the coming years, but House Ways and Means Committee Chairman Jeff Thompson said he believed state tax collections were solid enough to move up the rate cuts.
"We know from all the data we have that we’re in a good spot to make those decreases permanent," said Thompson, a Republican from Lizton. "We believe that Hoosier taxpayers would be the best place to have those additional dollars and they can spend those most wisely and improve their situation."
GOP Gov. Eric Holcomb initially joined Senate Republican leaders in being hesitant to support major tax cuts because of worries about inflation and a possible economic slowdown. But Holcomb then changed course, saying he believed the state could afford tax cuts because of continued strong revenues.
The multi-year implementation of what amounts to a 10% income tax rate cut spreads out both the impact on state revenues and the savings to taxpayers. The plan would reduce state revenue by about $950 million a year when fully implemented.
Asked about whether taxpayers would notice a tax cut that was spread out over so many years, Republican House Speaker Todd Huston said the goal was to put "hundreds of millions of dollars back in people’s pockets and that’s what we’re doing."
"I think people will feel it in these times with all the inflationary prices," Huston said.
Democrats had argued that if taxes were going to be cut, then residents should benefit quickly from the state’s cash reserves.
"We’re looking at those dollars that we can get back to the community because we don’t want to have any more missed opportunities for working men and women," Rep. Greg Porter of Indianapolis, the top Democrat on the tax-writing House Ways and Means Committee, said in 2022 when House Bill 1001 was initially approved.
Indiana’s individual income tax is currently lower than any surrounding state. Illinois' income tax rate is 4.95 percent. It's a flat rate, meaning every resident, regardless of income level, pays the same percent.
The Associated Press contributed to this report.