Indiana to exempt military pay from state taxes starting next year

(The Center Square) – Military members calling Indiana home will get a tax break starting next year.

House Bill 1034, which passed unanimously out of both Indiana General Assembly chambers this year, will grant active-duty military members a full exemption from the state income tax starting in January. Previously, the state had provided a $5,000 deduction.

Lawmakers noted complete exemptions are available in neighboring states, and they hope this move will help more consider calling Indiana their home.

“Our military members and their families make tremendous sacrifices in the defense of our country,” said state Rep. Bob Heaton, R-Terre Haute, co-author of the new law. “This is just one way we can show our appreciation for their service and help them keep more of their hard-earned money.”

The new law will also extend the state tax exemption to members of the armed forces reserves and Indiana National Guard units when they are on active duty.

According to HB 1034’s fiscal note, the active duty exemption could cost the state about $20 million in General Fund revenue starting with the 2025 fiscal year, and that loss could grow by as much as 5% annually. On a local level, the active duty exemption could cost communities about $10.4 million in 2025, with that amount potentially increasing by up to 5%.

The fiscal note did not have an estimate on the impact of the reserve and National Guard provisions. However, it did say it “would have a substantial impact” on local communities.

However, supporters of the measure see the benefits of the new law.

Besides having more military members move to Indiana, state officials hope they can keep them in the state once they leave the Army, Navy, Air Force, Marines or Space Force.

“Military veterans have the skills and work ethic that many Hoosier employers seek,” said state Rep. Alan Morrison, R-Brazil. “We should do everything we can to encourage them to call Indiana home after their service is over.”