Starting a business in Indiana: the county rate belongs to your employee
Five people, one office, five different county income tax rates coming off the payroll. That is not a mistake in your software — it is how Indiana works. Every one of the 92 counties levies an income tax on top of the flat 2.95% state rate, and the rate that attaches to each person is decided by the county they lived in on 1 January. Your own address has nothing to do with it. Get that one lookup right for each hire and the rest of the Indiana year is remarkably quiet.
Picture the first payroll run of a small Indiana firm with staff who commute in from different directions. One lives in Porter County, where the local rate is 0.5%. One lives in Randolph, where it is 3.0% — higher than the state rate itself. The other three are somewhere between. All five do identical work at identical desks for identical pay, and all five have a different number withheld.
Everything else about employing them is the same, which is the point. Indiana has no state business licence, no local sales tax anywhere, and no city or municipal income tax of the kind Ohio and Michigan run. The county rate is the one variable, and it belongs to the employee rather than to you.
- Sales tax
- 7% state · typically 7% at every address in the state
- Local income tax
- Yes — 0.5%–3.0% county, on top of the 2.95% state rate
- State business licence
- Not required statewide
- Workers' comp from
- 1 employee — there is no employee-count minimum
- Formation approved in
- INBiz filings are usually approved the same business day; paper filings take roughly a week
- First 90 days, all in
- $95–$800 · $95 of it to the state
Official portals: INBiz — Indiana's business one-stop · Indiana Department of Revenue — Sales Tax and RRMC registration · INBiz — tax and licence registrations. Figures checked September 2026; the portal always wins.
Setting the company up is a separate and shorter story: the Indiana LLC page covers INBiz, the $95 filing and the $32 report that comes round every second year. From here on, assume that is done.
One form, collected once, from everyone
Form WH-4 is where the answer comes from. Every employee completes one, and on it they state the county they were a resident of on 1 January of the tax year. That declaration — not your office address, not the site they work at, not where they lived when you hired them in August — fixes the rate you withhold for the whole year.
Someone who lives outside Indiana altogether is handled by the same clock from the other end: their rate comes from the county that was their principal place of work on 1 January. And unlike Michigan, where a city charges non-residents half what it charges residents, an Indiana county has a single rate that applies to everyone. There is no resident and non-resident split to maintain.
| County of residence on 1 January | County rate | With the 2.95% state rate |
|---|---|---|
| Porter — lowest in the state | 0.50% | 3.45% |
| Randolph — highest in the state | 3.00% | 5.95% |
The same rule reaches your own money
Profit from an Indiana LLC passes through to your personal return, where it picks up your home county's rate exactly as an employee's wages do. Between Porter at 0.5% and Randolph at 3.0% that is a 2.5-point spread on the same money — around $1,750 a year on $70,000 of profit.
Which is several times every Indiana state filing fee added together, and it is decided entirely by where you were living on 1 January. Registering the company in a different county does nothing. Moving house does everything.
Three things that start at employee one
None of them waits for a headcount, which sets Indiana apart from Missouri at five employees or Wisconsin at three.
Workers' compensation. Indiana Code 22-3-2-2 requires every employer to cover all employees and sets no threshold for the duty to begin, so it begins with the first one. Indiana is not monopolistic — private carriers write the policy and the premium is shoppable, so your payroll provider's usual insurer can generally handle it. Sole proprietors, partners and LLC members are outside cover by default and may elect in by written notice to the carrier; partners and LLC members must notify the Worker's Compensation Board as well.
Unemployment insurance. Register with the Department of Workforce Development through Uplink Employer Self Service. Indiana does not apply the $1,500-a-quarter test most states use — guidance describes liability as attaching once a business pays wages to even one employee. Secondary guidance has long put the taxable wage base at $9,500 and the standard new-employer rate at 2.5%, higher for construction, but neither figure was confirmed against a DWD source for 2026. Read your own rate off your Uplink account before you budget from it.
The county assessor, every 15 May. Forms 103 and 104 declare the equipment and furnishings the business owns. Indiana exempts small taxpayers below an acquisition-cost threshold, but recent legislation changed that threshold and it could not be confirmed against a primary source — so ring the assessor and ask for the current figure. That call is what decides whether you have an annual filing at all.
And then the easy part: 7%, at every address
After the county arithmetic, sales tax comes as a relief. Indiana charges 7% and no city, county or district adds anything to it. There is no rate lookup, no boundary question, no local return and nothing to reconcile between jurisdictions. Anyone who has sold into Missouri or Kansas, where two shops on the same street can owe different rates, will recognise how much work that absence removes.
Selling goods means holding a Registered Retail Merchant Certificate: $25 per business location through INBiz, displayed at each one, valid two years and renewed automatically at no cost while your returns and liabilities are current. It is the only licence-like thing an ordinary Indiana business holds, and after the initial fee there is nothing to diary. Sellers outside the state register once sales into Indiana pass $100,000 in a calendar year.
Most services are not taxed at all, so a consultancy, an agency or a trades business billing labour usually collects nothing and needs no certificate. One rate, a certificate that renews itself, services untaxed: that is why the sales tax side of an Indiana business takes an afternoon to set up and then stops asking anything of you.
Common questions
Whose county decides the rate I withhold — mine or my employee's?
Your employee's. The rate is set by the county each person was a resident of on 1 January of the tax year, collected from them on Form WH-4, and it has nothing to do with where your business sits. Someone living out of state is charged at the rate of the county that was their principal place of work on 1 January. A firm with staff drawn from five counties withholds five rates through one Indiana withholding account.
How wide is the spread between Indiana counties?
From 0.5% in Porter County to 3.0% in Randolph in 2026, on top of the flat 2.95% state rate — so combined rates run from 3.45% to 5.95%. The rates can be adjusted twice a year, in January and October, and the Department of Revenue publishes all 92 of them in Departmental Notice #1.
Does moving house change my own Indiana tax bill?
Yes, and by more than most people expect. The county rate on profit passing through your LLC follows where you lived on 1 January, so on $70,000 of profit the gap between the cheapest and dearest county is about $1,750 a year. Registering the company in a different county changes nothing — only your own residence does.
Is there a local sales tax anywhere in Indiana?
No. It is 7% at every address in the state, with no city, county or district add-ons, no rate lookup and no local return. That is one of the biggest practical differences between operating here and operating in Missouri, Kansas or Illinois.
Does my Registered Retail Merchant Certificate need renewing?
It renews itself. The certificate costs $25 per business location through INBiz, runs for two years, and is reissued automatically at no cost as long as your returns and liabilities are current. Service businesses generally never need one, because Indiana does not tax most services.
Do I need workers' compensation for my first employee in Indiana?
Yes. Indiana Code 22-3-2-2 requires every employer to cover all employees and sets no headcount minimum, unlike Missouri at five employees or Wisconsin at three. Independent contractors, farm labour and railroad employees are excluded. Owners are outside cover by default but may elect in, and private carriers write the policy — Indiana is not a monopolistic state.
Ask every hire which county, on day one.
Velofound records the answer against each person, keeps the 15 May assessor date and the retail certificate beside it, and puts all of it next to a website that is live and charging cards into your own Stripe account. Free to start.
Start free →