Tax Year 2026Updated July 13, 2026

Does Indiana Tax Tips in 2026?

No - Indiana does not tax qualified tips for tax year 2026. Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. The federal tips deduction (IRC §224) reduces Indiana adjusted gross income. Tipped workers save 2.95% (state) plus their county income tax rate (0.5%-3.38%) on up to $25,000 in qualified tip income. Phase-outs apply at $150,000 MAGI (single) / $300,000 (joint). Note: the deduction applies for tax year 2026 only.

How Indiana's Tips Tax Treatment Works

Indiana's conformity to the OBBBA tips deduction is confirmed by the Indiana Department of Revenue.

Income Tax Information Bulletin #128: The Indiana DOR confirmed conformity via Information Bulletin #128. Tips deductions apply for tax year 2026 only, capped at federal limits. The deduction reduces Indiana adjusted gross income.

Phase-out rules: The deduction phases out at $150,000 MAGI for single filers and $300,000 MAGI for joint filers, consistent with the federal limits established under IRC §224.

County income tax interaction: Because the tips deduction reduces Indiana AGI - which is the starting point for county income tax calculations - the deduction provides savings at both the state (2.95%) and county (0.5%-3.38%) levels. This is confirmed by IB #128.

Federal Tips Deduction Quick Reference

Detail	Value
IRC Section	§224 (OBBBA)
Maximum deduction	$25,000 tips
Deduction type	Above-the-line (Schedule 1-A)
FICA still applies?	Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?	No (MFJ or Single/HoH only)
Effective dates	Jan 1, 2025 – Dec 31, 2028
Indiana treatment	Conforms

Worked Examples Comparing Federal and Indiana Treatment

Example 1: Restaurant server in Marion County (single filer, $40,000 income, $15,000 in tips)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Indiana return:
Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. Tips deductions apply for tax year 2026 only, capped at federal limits. Phase-outs: $150,000 MAGI (single) / $300,000 (joint). The $15,000 deduction saves approximately $442.50 in state tax (2.95%) plus $303 in Marion County tax (2.02%), for a combined state+county savings of roughly $745.50.

Example 2: Bartender in Marion County (single filer, $70,000 income, $25,000 in tips - federal cap reached)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Indiana return:
Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. Tips deductions apply for tax year 2026 only, capped at federal limits. Phase-outs: $150,000 MAGI (single) / $300,000 (joint). The $25,000 deduction saves approximately $737.50 in state tax (2.95%) plus $505 in Marion County tax (2.02%), for a combined savings of roughly $1,242.50.

Indiana's County Income Tax System

Indiana is unique in that all 92 counties levy their own income taxes on residents, with rates ranging from 0.5% to 3.38%. These county taxes are significant - in some counties, the county rate exceeds the state rate of 2.95%. Key county rates include:

Marion County (Indianapolis): approximately 2.02%
Lake County: approximately 1.50%
Allen County (Fort Wayne): approximately 1.48%
Hamilton County: approximately 1.00%
St. Joseph County (South Bend): approximately 1.75%

The confirmed tips deduction saves workers not just the 2.95% state rate but also their applicable county rate - yielding combined savings of 3.45% to 6.33% on qualified tip income.

Indiana's Declining Flat Rate

Indiana has been gradually reducing its flat income tax rate: from 3.23% (pre-2023) to 3.15% (2023), 3.05% (2024-2025), and now 2.95% for 2026. While this means the state-level savings from the tips deduction is slightly smaller than in prior years, the overall tax burden on tip income is also lower. The county income tax, however, has not been subject to the same reduction trend.

Conformity Confirmed for Tax Year 2026 Only

Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. The tips deduction applies for tax year 2026 only, capped at federal limits, with phase-outs at $150,000 MAGI (single) / $300,000 (joint). Workers and tax preparers can monitor in.gov/dor for any subsequent updates or extensions to future tax years.

Related Tools

No Tax on Tips Calculator - calculate your federal tips deduction
Indiana Tax Guide - full state tax overview
Indiana Paycheck Calculator
Does Indiana Tax Overtime?
W-2 Code TP: Tips Reporting Guide
W-2 Code TT: Overtime Reporting Guide
All 51 States: Tips & Overtime Tax Map

Frequently Asked Questions

Does Indiana conform to the federal 'no tax on tips' deduction under the OBBBA?

Yes. Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. Tips deductions apply for tax year 2026 only, capped at federal limits. Phase-outs: $150,000 MAGI (single) / $300,000 (joint). The federal tips deduction (IRC §224) reduces Indiana adjusted gross income.

Why is Indiana's conformity considered 'partial' rather than confirmed?

Indiana's conformity is now confirmed via Income Tax Information Bulletin #128. The DOR has clarified that tips deductions apply for tax year 2026 only and reduce Indiana adjusted gross income, which flows through to county tax calculations as well. The $150,000 MAGI (single) / $300,000 (joint) phase-outs apply.

What Indiana income tax rate applies to my tip income?

Indiana imposes a flat 2.95% state income tax on all taxable income for tax year 2026 (reduced from 3.05% in 2025). In addition, all 92 Indiana counties levy their own income taxes, ranging from 0.5% to 3.38%. Your county rate depends on your county of residence. With conformity confirmed for TY2026, qualified tip income up to the federal cap is deducted from Indiana AGI, reducing the combined state-plus-county burden (3.45% to 6.33%) on that deducted amount.

How do Indiana county income taxes interact with the tips deduction?

Indiana's county income taxes are computed on a base that starts from Indiana adjusted gross income. Income Tax Information Bulletin #128 confirms that the OBBBA tips deduction reduces Indiana AGI, which flows through to reduce county income tax as well - providing savings at both the state and county level.

When will Indiana issue guidance on OBBBA conformity?

Indiana has confirmed conformity via Income Tax Information Bulletin #128. Workers and tax preparers can monitor the Indiana DOR website (in.gov/dor) for any further updates or additional bulletins.

Should I file my Indiana return assuming the tips deduction applies?

Yes, you may claim the tips deduction on your Indiana return for tax year 2026. Indiana DOR confirmed conformity via Income Tax Information Bulletin #128. The deduction applies for tax year 2026 only and is subject to the $150,000 MAGI (single) / $300,000 (joint) phase-outs. Consult a tax professional familiar with Indiana conformity rules for personalized advice.