Tax & Accounting Blog

Indiana Local Withholding Rate Update Affects Pension Payments

ONESOURCE October 28, 2013

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The Indiana Department of Revenue has issued its annual update of Departmental Notice 1 which announces rates of county income tax for withholding purposes. If you have a business location in Indiana and are asked by an Indiana resident to withhold Indiana state income tax on retirement plan distributions from pensions or annuities, or IRA distributions, you are also required to withhold Indiana county and municipal taxes. Changes in the new edition of DOR Notice 1 include the following:

Allen County – The resident rate has increased from .01 to .0135. The nonresident rate has increased from 0.0055 to 0.006375.
Hancock County – The resident rate has increased from .0155 to .0165. The nonresident rate has increased from .0035 to .0045.
Jasper County – The resident rate has decreased from .03114 to .02964.
Lake County – Lake County is the last of Indiana’s 92 counties to adopt a county income tax. A resident rate of .015 and nonresident rate of .005 took effect October 1. Caution: an early announcement from the Department of Revenue had an incorrect .0025 nonresident rate for Lake County. The correct rate is .005.
Madison County – The nonresident rate has decreased from .00625 to .004375.
Washington County – The resident rate has increased from .015 to .02.

Effective dates for county income tax rates are now established under new state legislation enacted earlier this year. Rates adopted by a county after December 31 and before September 1 take effect on October 1. Rates adopted by a county after August 31 and before November 1 take effect on January 1 of the following year.
DOR Notice 1, http://www.in.gov/dor/files/dn01.pdf.