IN
Does Indiana tax tips and overtime?
The federal deduction and the Indiana deduction are separate questions. Here is where Indiana actually lands, and why.
How Indiana builds its tax base
Indiana starts from your federal adjusted gross income. Both deductions are below-the-line — they reduce federal taxable income but leave AGI untouched — so neither reaches this state's return automatically. Anything you get here had to be legislated separately.
Tips in Indiana
PartlyIndiana AGI starts from federal AGI (IC 6-3-1-3.5(a)), so the below-the-line IRC 224 deduction never flowed through on its own; for TY2025 Indiana allowed nothing. Senate Enrolled Act 243 (2026 session, signed by Gov. Braun on March 5, 2026) affirmatively couples Indiana to IRC 224 by adding a deduction from Indiana adjusted gross income equal to the federal qualified-tip deduction, but ONLY 'for taxable years beginning after Dec. 31, 2025, and ending before Jan. 1, 2027' — i.e., tax year 2026 only. TY2025 is not covered and TY2027-2028 require new legislation, hence 'partial'.
Source: Katz, Sapper & Miller, '2026 Indiana Legislative Update' (analyzing Ind. Senate Enrolled Act 243, 2026 Reg. Sess.); corroborated by Sovos Regulatory Update on Indiana SB 243 · last reviewed
Overtime in Indiana
PartlySame mechanism and same one-year window: SEA 243 (2026) adds a deduction from Indiana adjusted gross income mirroring IRC 225 qualified overtime compensation (the FLSA premium only), capped at the amount allowed federally, for taxable years beginning after Dec. 31, 2025 and ending before Jan. 1, 2027. Nothing was allowed for TY2025, and TY2027-2028 depend on a future extension. LSA scored the overtime piece as the larger of the two (roughly $98M-$181M range depending on the estimate).
Source: Sovos Regulatory Update, 'Indiana Senate Bill 243: Rounding Rules, Deductions, Withholding' (SEA 243 signed Mar. 5, 2026; deductions from Indiana AGI mirroring IRC 224, IRC 225 and IRC 163(h)(4) for TY2026) · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.
This entry rests on a reputable secondary source rather than a Indiana revenue department publication or an enacted bill. Treat it as reliable but confirm before you file.