IN: How to Compute Withholding for State and County Income Tax

At A Glance

• The Indiana Department of Revenue provided guidance to help employers determine the correct amount of Indiana county income tax to withhold from employee wages effective September 15, 2023.
• Indiana also released each county’s tax rate and new withholding for first-time additional dependent exemption.

Indiana County Tax Rates

Departmental Notice #1 provides guidance on county tax assignation, deduction tables, and a listing of the current county tax rates.

Withholding agents should withhold county tax based on the employee’s Indiana county of residence as of January 1 of the tax year. If the employee resides out-of-state on January 1 but has his or her principal place of work or business in an Indiana county as of January 1, then the withholding agency should withhold for the Indiana county of principal place of work or business.

Indiana County Tax Rates: Effective January 1, 2023:

How to Calculate Indiana State and County Income Tax

Indiana provides deduction constant tables on the Departmental Notice #1 to help calculate state and county income tax. These tables divide the dollar amount of the exemption/dependent exemption by the number of pay periods. This will determine the deduction constant or the dollar amount of the exemption you should deduct each pay period from the employee’s gross income.

Calculating Personal Exemptions

Use Table A to figure out personal exemptions. Each employee is entitled to deduct $1,000 per year per exemption claimed on line 5 of his/her Form WH-4. Personal exemptions include additional exemptions if the employee and/or the employee’s spouse are age 65 or older and/or blind. See Form WH-4.

Calculating Additional Dependent Exemptions

New for withholding after September 14, 2023: Use Table B to figure out first-time additional dependent exemption. Most employees are entitled to deduct $1,500 per year per qualifying first-time dependent exemption claimed on line 7 of his/her Form WH-4.

Use Table B to figure out additional dependent exemptions. Most employees are entitled to deduct $1,500 per year per qualifying dependent exemption claimed on line 6 of his/her Form WH-4.

Calculating Adopted Child Dependent Expemptions

Use Table C to figure out adopted child dependent exemptions. Most employees are entitled to deduct $3,000 per year per qualifying adopted child claimed on line 8 of his/her Form WH-4.

More information on this change is available on the Indiana Department of Revenue website.

Download the Employee's Withholding Exemption & County Status Certificate WH-4.

For more information on Indiana wage and payroll tax laws, check out our Indiana Wage and Payroll Tax Facts page.

Next Steps

We’ll post additional resources and any other information in our PEAK knowledge base when it’s available.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.