State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees. Go to Retiree Tax Map Indiana Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Not Tax Friendly High state income taxes on retirees are the driving force behind Indiana's poor tax rating. While the Hoosier State exempts Social Security benefits and offers limited exemptions for military pensions and federal civil-service pensions, IRAs, 401(k) plans and private pensions are fully taxable. Keep in mind, too, that counties have the authority to levy their own income taxes on top of the state's flat tax.The state's sales and property taxes don't help the cause, either. They're both middle-of-the-road when compared to other states. Not bad, but not enough to counter the state's high income tax rates. Income Tax Range Indiana has a flat rate of 3.23% of state adjusted gross income after modifications. Counties also levy income taxes. Taxation of Social Security Benefits Social Security benefits are not taxed by the state. Tax Breaks for Other Retirement Income Taxpayers age 62 and older can deduct up to $16,000 of income from a federal civil-service annuity (minus Social Security and Tier 1 Railroad Retirement benefits).For 2020, up to $6,250 of income from a military retirement plan, plus 50% of the amount received that exceeds $6,250, is exempt. The exemption is gradually increased to a full exemption by 2022.Railroad Retirement benefits are also exempt. Sales Tax 7% state levy. No local taxes.Groceries: ExemptClothing: TaxableMotor Vehicles: TaxablePrescription Drugs: Exempt Real Property Taxes Homeowners 65 and older who earn $30,000 or less ($40,000 or less for a married couple) are eligible to receive a tax reduction on property with an assessed value of $200,000 or less. The amount of the deduction is the lesser of one-half of the assessed value of the property or $14,000.The state also allows those 65 or older with an income under $30,000 ($40,000 for couples) to have increases in assessed value limited to 2% a year. This benefit is limited to properties with an assessed value below $200,000. Annual Car Taxes and Fees An annual vehicle excise tax based on a car's sticker price (MSRP) and age is imposed. Estate and Inheritance Taxes No estate or inheritance tax.