Comprehensive Guide to Indiana Payroll Taxes

Are you an employer with employees in Indiana? It’s important to be aware of state-specific and federal regulations and requirements to remain compliant.

This guide provides employers with detailed and structured overview of Indiana's payroll and outlines the taxes that employers are required to pay or withhold and remit to the state.

Overview of payroll in Indiana

Indiana employers should be aware of the following state-specific information:

• Employers in Indiana manage Federal Income Taxes, FUTA, FICA Taxes, and state payroll taxes
• Indiana has reciprocal tax agreements with Kentucky, Pennsylvania, Michigan, Ohio, and Wisconsin
• Indiana counties charge local income taxes
• Nonprofit organizations are not exempt from payroll taxes in Indiana if they have employees

Paying unemployment insurance

Unemployment insurance (UI) is a government program that provides temporary financial support to eligible individuals who have lost their jobs while they actively seek new employment opportunities. Indiana employers must pay UI on their employees' behalf to the state's program administrators: the Indiana Department of Workforce Development.

In Indiana, UI is calculated up to a taxable wage limit of $9,500 and maximum contribution of $703 per employee, per year. New employers pay UI at a rate of 2.5%, while existing employers contribute 0.5% to 7.4%.

Employers must pay UI quarterly, by April 30, July 31, October 31, and January 31. Late payments incur a fee of 10%, plus 1% interest. You can manage unemployment insurance payments through the convenient Indiana Unemployment Insurance online portal.

For more information on paying your unemployment insurance, you can consult the Indiana Department of Workforce Development online.

Withholding personal income tax from your Indiana employee

As with other withholding federal taxes, such as Medicare and Social Security, employers are responsible for withholding and paying certain Indiana state taxes from their employees during payroll. Combined, these taxes are called employer payroll taxes or payroll withholding.

Personal Income Tax (PIT), also known as individual income tax or state income tax, is a levy on the income of Indiana residents to fund the state's education, health and human services, public safety, and more. Indiana employees pay PIT on their full wage at a flat rate of 3.05%. Indiana employers are responsible for withholding the tax from the employee’s wages and paying the withheld amount to the Indiana State Department of Revenue, which may audit tax returns to ensure compliance.

The due date for employers to remit personal income tax depends on their average monthly withholding. Annual and monthly filings must be submitted within 30 days of month-end, while early filer payments must be submitted within 20 days of month-end. Late payments incur a penalty charge of up to 20%.

Payment can be made through Indiana’s online portal. For added context, the Indiana Department of Revenue provides more information on paying the withheld amount.

Submitting payroll taxes in Indiana

Before submitting payroll taxes as an employer in Indiana, you must do the following:

• Obtain an EIN from the IRS
• Collect Form W-4 and Form WH-4 from employees
• Register with the Indiana Department of Revenue

Most employers are required to file payroll taxes online via IN Time and the Department of Workforce Development's Employer Self Service portal. Employers who file by mail must use forms IL-501 and IL-941 for withholding tax and Form UI-3/40 for unemployment tax.

Paying Indiana Workers’ Compensation

Workers' compensation is another insurance system that safeguards the well-being of employees in the event of work-related injuries or illnesses. The program ensures that workers receive essential benefits and compensation to cover medical expenses, rehabilitation costs, and a portion of their lost wages during the time they are unable to work due to job-related accidents or health conditions. 

In Indiana, it is mandatory for employers to pay for workers’ compensation, even if you only have one Indiana employee. Typically, workers’ compensation is purchased from a qualified commercial carrier in the state. More information on Indiana-qualified commercial carriers can be accessed from the Worker’s Compensation Board of Indiana.  

Whichever commercial carrier you choose, it’s important to verify that your workers’ compensation insurance complies with the state’s regulations for workers’ compensation.

Simplify US payroll tax compliance with Deel

If you’re an employer in Indiana, this guide provides essential information on Indiana payroll taxes, compliance, and state requirements. While the information serves as a great starting point, there are many more compliance issues to consider. That’s why companies turn to Deel to streamline the process and ensure full compliance. 

Deel offers a comprehensive solution for managing US and international payroll. Request a demo to discover how our robust platform streamlines your US payroll processes — including unemployment insurance, workers’ compensation, and personal income tax.