Indiana Hourly Paycheck Calculator
Indiana is home to the Racing Capital of the World. With several annual auto racing events each year, Indianapolis attracts motorsports enthusiasts from all over the world. It also attracts small business owners due to its central location and easy highway access.
As an Indiana small business owner, you may feel like you’re always racing against the clock to process your payroll and pay your taxes on time.
We’ll get you up to speed on all of Indiana’s payroll taxes, and cover some of the standard paycheck rules to get you to the payroll finish line with ease.
Indiana state payroll taxes
Indiana withholding tax
Indiana uses a flat tax rate for personal income, and all taxpayers pay tax at 3.23%. This makes calculating withholding tax reasonably straightforward. You’ll multiply your employee’s taxable wages by 3.23%. This will be the amount of tax you withhold.
If you have employees who are nonresidents of Indiana and reside in Kentucky, Michigan,
Ohio, Pennsylvania, or Wisconsin—they will need to complete Form WH-47, Certificate of Residence, to certify that they are a resident of one of these states and aren’t subject to Indiana income tax.
Indiana has tax reciprocity agreements with these states, which generally allows residents of one state to work in another state without having taxes from the working state withheld from their paychecks.
All other employees need to complete Form WH-4, Employee’s Withholding Exemption and County Status Certificate. Here, employees will mark the number of exemptions they are claiming and which county the employee lives and works in.
Form WH-4 is used for calculating the amount of county income tax to be withheld. You’ll use Indiana Department of Revenue Departmental Notice #1 to calculate the county tax amount.
Keep copies of this form for your records and have employees update their WH-4 when their information changes.
Paying Indiana withholding tax
Your business needs to register with the Indiana Department of Revenue to send withholding payments to the state.
Businesses are encouraged to file and pay their withholding tax online. How frequently you’ll pay and file depends on how much tax you withhold in a year. Payment frequencies can be:
- Monthly, or
- Early monthly (payment required 20 days after the end of the month)
Payroll tax reports are due even for periods when no tax is due or no wages were paid.
And each year, most employers need to file an annual report online and send copies of Form W-2, Wage and Tax Statement.
Indiana unemployment tax
The Department of Workforce Development administers Indiana’s unemployment insurance program.
Employers pay Indiana’s unemployment tax on the first $9,500 of an employee’s pay each year.
Most new employers will pay a 2.5% rate for the first four calendar years they operate in Indiana. After that time, your business will receive an experience-based merit rate which is based on:
- Your experience balance (the number of claims paid compared to the amount of taxes paid), and
- Your past 36 months’ payroll
Merit rates can range from 0.50% to 7.40%.
Employers pay and file a wage report each quarter. And Indiana prefers that you do it online through the Employer Self Service portal.
You can look through the employer’s handbook for more details on Indiana’s unemployment insurance program.
Other Indiana paycheck rules
Keep these Indiana paycheck rules in mind.
- Minimum wage – Indiana’s minimum wage is $7.25 per hour. A training wage of $4.25 per hour for the first 90 days is allowed for employees under age 20.
- Overtime – Indiana follows the federal Fair Labor Standards Act for overtime payment. Generally, hourly employees who work more than 40 hours in a week must be paid at least 1 ½ times their hourly rate for the excess hours.
- Workers’ Compensation insurance – Requirements to obtain Workers’ Compensation vary by state, this table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information.
- Final paychecks – Final wages are due no later than the next regularly scheduled payday.
Federal payroll taxes in Indiana
Don’t overlook the federal payroll taxes. There are four you need to collect and pay.
|Federal Payroll Taxes|
|FUTA, Federal unemployment|
|FIT, Federal income tax withholding|
|FICA, Federal Insurance Contributions Act|
|Additional Medicare tax|
FUTA, Federal unemployment tax
Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but most employers only have to pay 0.6% each year.
FIT, Federal income tax withholding
Withholding federal income taxes from employees’ paychecks is necessary for workers to pay their federal tax bill throughout the year. The method for calculating how much to withhold is a bit more involved than Indiana’s withholding tax.
FIT uses a progressive tax system, which means that as your earnings increase, so does your tax rate. Tax rates range from 10% to a maximum of 37% for individuals.
How much you’ll take out of your workers’ paychecks depends on several factors. You’ll need to start by having each employee complete Form W-4, Employee’s Withholding Certificate.
Employees will provide their tax filing status, and their number of dependents on this form and this information is used in the withholding calculation.
FICA, Federal Insurance Contributions Act
The Federal Insurance Contributions Act, or FICA tax, is made up of the Medicare tax and the Social Security tax. In 2022, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $147,000. The Medicare tax requires each to contribute 1.45% of all wages. See the IRS webpage for details, like maximum thresholds.
Additional Medicare tax
Starting in 2013, the Additional Medicare tax is withheld from employees earning more than $200,000 per year. The tax rate is 0.9% on the excess wages.
Unlike the Medicare tax under FICA, employers don’t match the Additional Medicare tax.
Filing and paying federal payroll taxes
How often you pay your federal payroll taxes depends on how much you owe.
Annually or quarterly payments
FUTA tax is generally paid annually. However, if you owe more than $500, you’ll need to make quarterly payments. You’ll submit Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, each time you make payment.
Monthly, semi-weekly, or next-day payments
FICA, FIT, and Additional Medicare tax are generally paid monthly or semi-weekly. But employers with large payrolls may need to make next-day payments.
Regardless of how often you pay, you’ll need to file quarterly payroll tax returns on Form 941, Employer’s Quarterly Federal Tax Return.
Be sure to set aside the money to pay your taxes on time. Penalties and interest can be charged if you pay late.
And the same goes for filing your payroll reports. Late filings, even by just one day, can cost you. You can free up your time and mind by using a comprehensive payroll provider to ensure you never miss a deadline.