Moving from Canada to Indiana: State Tax, County Tax, and Cross-Border Planning

Indiana taxes personal income at a flat 3.05%, down from 3.15% in 2024 and 3.23% before that, and the state has a statutory path to keep cutting it further in future years. That alone puts Indiana among the lowest state income tax rates in the country, in the same neighborhood as Pennsylvania’s 3.07% flat rate. For someone moving from Ontario, Alberta, or BC for a role at Eli Lilly, a logistics company, or one of the motorsports-adjacent manufacturers clustered around Indianapolis, that headline number looks appealing. But Indiana layers a second tax on top that the state rate alone doesn’t show: every one of its 92 counties charges its own income tax, and that county rate is not optional. The state bracket is only the starting point.

How does Indiana’s tax compare to provinces?

Indiana’s flat 3.05% sits well below every Canadian province’s top marginal bracket, and even below most provinces’ bottom bracket.

Jurisdiction	Rate	Notes
Ontario	~20.5% (with surtax)	Top rate, on income above $220,000
BC	20.5%	Top rate, on income above $252,752
Alberta	15%	Top rate, on income above $355,845
Quebec	25.75%	Top rate, on income above $126,000
Indiana (state only)	3.05%	Flat, applies to all income

On $150,000 of employment income, Indiana state tax alone runs about $4,575. Ontario provincial tax on the same income lands closer to $17,000 to $19,000 CAD before any federal comparison even enters the picture. Add Indiana’s county tax and the state-plus-county total still stays well under half of what a single Canadian province charges on its own. That gap is the whole reason Indianapolis pulls Canadian pharma, logistics, and manufacturing talent, but the county layer below is what determines exactly how wide the gap is for you.

How do Indiana’s county income taxes work?

This is the part that surprises most people, because it’s structurally similar to Ohio’s municipal tax system but organized by county instead of by city. Indiana requires every county to levy a local income tax, and the rate is set by each county’s income tax council, so it varies a lot depending on where you land:

• Marion County (Indianapolis): 2.02%
• Hamilton County (Carmel, Fishers, Noblesville): 1.2%
• Allen County (Fort Wayne): 1.48%
• Pulaski County: 3.38%, the highest in the state
• Several small rural counties: around 0.5%, the lowest tier

The county tax is based on where you live on January 1 of the tax year, not where you work, which is the opposite of how Ohio’s city tax attaches to work location. That means moving into Marion County on February 1 still leaves you liable at your prior county’s rate for that entire year under Indiana’s county tax rules, since liability locks in on the January 1 snapshot. It’s a detail that catches a lot of people who move mid-year expecting the new county’s rate to apply immediately.

Employers generally withhold county tax based on the county of residence on file, and the tax is reported and reconciled on the state return (Form IT-40) rather than through a separate local filing, which is simpler than Ohio’s multi-agency municipal system. There’s no equivalent of RITA or CCA to deal with. Combined, state plus county rates across Indiana range from about 3.55% (low-rate counties) to 6.43% (Pulaski County), with the Indianapolis-area counties most Canadian movers land in falling in the middle of that range, generally 4.25% to 5.07% combined depending on the specific county.

How does Indiana treat the RRSP?

Indiana starts from federal adjusted gross income and doesn’t add back RRSP-related items, so it inherits the treaty treatment resolved at the federal level without modification. The RRSP treaty deferral under Article XVIII keeps the account’s internal growth out of federal AGI for as long as it stays deferred, and Indiana simply follows that federal number through onto the IT-40. When distributions eventually happen, they enter federal AGI and flow through to Indiana at the flat 3.05% plus whatever county rate applies to your county of residence at that time.

Indiana doesn’t offer a broad retirement income exemption for 401(k), IRA, or pension income the way some states do. What it does offer is narrower: a $6,000 military retirement income deduction, and a full exemption for Social Security benefits from state tax. Outside of those two carve-outs, retirement distributions, including RRSP withdrawals once they hit federal AGI, are fully taxable at the flat state rate plus county rate. Don’t assume Indiana shelters retirement income broadly; it doesn’t, beyond the two specific exceptions.

TFSA income has no treaty protection federally and flows straight through to the Indiana return once it hits federal AGI. The standard advice to close the TFSA before departure applies here the same as anywhere else.

What happens on the Canadian side?

Leaving Canada for Indiana triggers the same departure sequence as any Canada-to-US move, regardless of destination state:

• Deemed disposition at fair market value on worldwide property
• A final Canadian return covering January 1 through the departure date
• Provincial tax at your home province’s rates for the period you were still resident
• T1161 and, where the deemed disposition gain crosses the threshold, T1243
• Notifying the CRA of your change to non-resident status
• RRSP stays open and deferred; TFSA gets closed before departure

On the US side, the dual-status vs. full-year election decision usually matters most in the arrival year, since it determines which deductions and filing status are available and shapes how much Indiana-source income lands on your part-year IT-40.

What other taxes does Indiana have?

Beyond income tax, a few other Indiana taxes matter for anyone settling in or running a business there:

• Sales tax: a flat 7% statewide, with no local additions anywhere in the state. It’s on the higher end nationally, but it’s uniform, so there’s no need to check a county rate the way you would in most other states.
• Property tax: capped by the Indiana constitution at 1% of assessed value for owner-occupied homesteads, 2% for other residential property and farmland, and 3% for business and other property. In practice, that means a primary residence in Indiana rarely pays more than 1% of assessed value in property tax, a genuinely low ceiling compared to most states and well below effective rates in Illinois or Ohio.
• Estate and inheritance tax: Indiana has neither. The state repealed its inheritance tax effective 2013 and has no separate estate tax, so a Canadian moving in with a sizable estate doesn’t need to plan around a state-level layer here.

How does Indiana compare to nearby states?

For Canadians weighing Indiana against neighboring destinations, the county tax is the feature that sets Indiana apart:

• Ohio: a graduated state rate topping out at 3.5%, plus a similar local layer, but Ohio’s local tax is levied by roughly 600 cities based on work location, while Indiana’s is levied by 92 counties based on residence. Ohio’s system involves collection agencies like RITA and CCA; Indiana’s county tax is just reconciled on the state return.
• Michigan: a flat 4.25% state rate, higher than Indiana’s 3.05%, with Detroit adding its own 2.4% city tax for residents. Michigan’s local tax layer is limited to a handful of cities rather than applying everywhere the way Indiana’s county tax does.
• Illinois: a flat 4.95% state rate with no local income tax anywhere, including Chicago. Illinois trades a meaningfully higher flat rate for the simplicity of a single layer, while Indiana keeps its state rate lower but adds a county layer everywhere.

Lined up together, Indiana has the lowest state-only rate of the group, and even after adding the county layer, most Indiana counties still land below Illinois’s flat 4.95% and well below Michigan-plus-Detroit. The exception is Pulaski County, where the combined rate of 6.43% would exceed all three neighbors. For most people moving into the Indianapolis metro, Indiana comes out ahead on combined tax burden even with the county layer included.

What should I do next?

The Canadian exit sequence is identical no matter which US state you’re headed to, so start with the departure checklist before you go. On the Indiana side, the detail that actually moves the needle is your county of residence on January 1, since that single date determines your county tax rate for the full year regardless of when you actually move in.

• Departure tax checklist, the full Canadian exit sequence
• Canada departure tax: T1161 and T1243, the deemed disposition forms
• US-Canada tax treaty explained, how Article XVIII protects the RRSP
• RRSP and TFSA on a US move, what to keep open and what to close
• First US tax return after moving from Canada, the arrival-year mechanics
• State income tax for cross-border filers, how state rules generally interact with the treaty
• Moving from Canada to Ohio, the neighboring state with a similar local-tax structure
• Moving from Ontario to Michigan, another nearby comparison
• Moving from Canada to Illinois, the higher flat-rate, no-local-tax alternative
• Moving from BC to California, for contrast against a state that taxes the RRSP more aggressively
• Moving from Canada to Kentucky, the neighboring flat-rate state with local occupational taxes

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.