Indiana vs Michigan: Taxes & Take-Home Pay 2026

Low state rates, different local layers

Indiana's state rate is 2.95% in 2026, falling to 2.90% in 2027. Michigan's is 4.25%. Indiana is not as cheap as that gap suggests, because all 92 Indiana counties add their own income tax, from 0.5% in Porter County to 3% in Randolph County (Marion County is 2.02%). Most of Michigan has no local income tax, and 24 cities do.

The border between South Bend–Elkhart and Niles–St. Joseph is one of the busiest commuter lines in the Midwest. Families in southwest Michigan often weigh a move to northern Indiana, and the other way round.

Exemptions: Michigan is more generous

Neither state has a standard deduction. Michigan gives a $5,900 exemption for each person in the household, children included. Indiana gives $1,000 per taxpayer and an extra $1,500 for most dependent children ($2,500 in total per child).

For a single worker on $65,000, Indiana state tax plus county tax at the statewide average of 1.93% comes to $3,143. Michigan tax with no city tax is $2,512. For a married couple with two children on $110,000, Indiana totals $5,162 and Michigan $3,672. The result depends heavily on your county: a family in a 0.5% county pays much less than one in a 2.5%-plus county.

Commuting across the line

Indiana and Michigan have a reciprocal agreement. Under Indiana's Information Bulletin #28, a Michigan resident with Indiana wages reports and pays state income tax only to Michigan, and an Indiana resident's Michigan wages are reported to Indiana as if earned there.

The agreement does not cover local income taxes. A Michigan resident whose only Indiana income is wages files Indiana Form IT-40RNR, and Indiana works out any county tax owed. An Indiana resident who pays a Michigan city's nonresident tax can claim a credit against their Indiana county tax, even though the wages are exempt from Michigan state tax.

County tax is set on January 1

Indiana county tax is based on the county you lived in on January 1. If you move to Indiana from Michigan in March and neither lived nor worked in Indiana on January 1, you generally owe no Indiana county tax for that year. You start paying county tax the following year. Moving between Indiana counties mid-year does not change your rate until the next January 1.

Sales tax and retirement

Michigan has the lower sales tax, and for many retirees it is also the lower-tax state for pension income.

• Sales tax is a flat statewide rate in both states with no local add-ons: 7% in Indiana and 6% in Michigan.
• Michigan does not tax Social Security. For 2026, the retirement subtraction is also fully phased in, so every retiree can subtract up to 100% of qualifying pension and retirement benefits.
• Indiana gives extra exemptions to filers 65 and older or blind, but it has no broad pension subtraction comparable to Michigan's. Check Indiana's deductions for your specific income before assuming either state is cheaper in retirement.
• Indiana offers a renter's deduction for rent paid on your Indiana home, up to $3,000 ($1,500 if married filing separately).

Checklist for cross-border workers

Most cross-border problems between Indiana and Michigan come from local taxes, not the state taxes covered by reciprocity.

• Michigan resident, Indiana job: claim reciprocity so your employer withholds Michigan tax, not Indiana state tax. Expect Indiana county tax to be handled on Form IT-40RNR.
• Indiana resident, job in a Michigan city with an income tax: you owe that city's nonresident tax, usually 0.5%. Claim Indiana's credit for local tax paid outside Indiana against your county tax. The credit is limited to the lower of the tax paid or your county tax on that income.
• Indiana resident, Michigan job outside a taxing city: report the wages on your Indiana return as if earned in Indiana. File a Michigan return only to get back any Michigan tax withheld by mistake.
• Families who adopt: Indiana allows a $3,000 exemption for adopted children for withholding, so update your Indiana withholding certificate.

Filing in the move year

Indiana part-year residents file Form IT-40PNR. Michigan part-year residents file a Michigan return that splits income between the resident and nonresident periods. Because of reciprocity, if your job stays put, only your state of residence on each date taxes your wages. Give your employer a new state withholding certificate on the move date and, in Indiana, make sure the employer has your correct January 1 county.