Illinois vs Indiana Taxes
Compare the total tax burden between Illinois (4.95% flat) and Indiana (3.05% flat). Enter your income to see which state saves you more.
Illinois vs Indiana: The Midwest's quiet tax border
Illinois and Indiana share a border and a flat income tax structure, but the rates diverge sharply—4.95% in Illinois versus 3.05% in Indiana. That 1.9 percentage-point gap translates to real money for the hundreds of thousands of workers who live in northwest Indiana and commute to Chicago. The tax differential has fueled steady residential growth in Indiana border counties like Lake, Porter, and LaPorte, where families can access Chicago-area jobs while keeping more of their paycheck.
Property taxes add another layer. Illinois has some of the highest property taxes in the nation, with an effective rate averaging 2.07%—driven by Cook County rates that can exceed 3%. Indiana's average effective rate is roughly 0.81%, less than half of Illinois. On a $300,000 home, that gap amounts to about $3,780 per year in savings for Indiana homeowners.
Cost of living reinforces the pattern. Indianapolis is consistently ranked among the most affordable large metros in America, with housing costs roughly 40% below Chicago. Even northwest Indiana towns like Crown Point and Valparaiso offer suburban living at a fraction of comparable Chicago suburbs. For families, the combination of lower income tax, dramatically lower property tax, and cheaper housing creates a compelling financial case—though Chicago's cultural offerings and transit infrastructure remain significant trade-offs.
Key Differences Beyond Income Tax
| Category | Illinois | Indiana |
|---|---|---|
| Property Tax | Effective rate ~2.07%; Cook County can exceed 3%; among highest in the U.S. | Effective rate ~0.81%; constitutional cap of 1-3% of assessed value by property class |
| Sales Tax | Base rate 6.25%, combined up to 11% in Chicago (highest major-city rate in the U.S.) | Flat 7% statewide; no local additions |
| Cost of Living | Chicago affordable by major-city standards but high taxes offset savings; suburbs expensive in property tax | Indianapolis ~40% cheaper than Chicago for housing; northwest Indiana offers affordable Chicago commuting |
| Retirement Income | All retirement income (Social Security, pensions, 401k/IRA) exempt from state income tax | Social Security exempt; pensions and 401k/IRA taxed at the flat 3.05% rate |
| Business Taxes | Corporate income tax 9.5% (7% + 2.5% personal property replacement tax); $200B+ pension liability overhang | Corporate income tax 4.9%; more business-friendly regulatory environment |
Who Benefits from Moving?
Chicago-area families considering the suburbs
A family earning $120,000 saves about $2,280 in state income tax by choosing Indiana over Illinois. Add the property tax savings on a $300,000 home (~$3,780) and the total annual savings approach $6,000—enough to fund a 529 plan or accelerate mortgage payoff.
Northwest Indiana commuters
Workers commuting from Indiana to Chicago jobs pay Indiana's 3.05% rate (with credit for IL taxes on IL-source income). The South Shore Line connects towns like Valparaiso and Chesterton to downtown Chicago in under 90 minutes, making the tax savings accessible without changing jobs.
Retirees choosing between the two states
Illinois exempts all retirement income from state tax, which is better for retirees than Indiana's 3.05% on pensions and 401k withdrawals. A retiree drawing $60,000 from retirement accounts would pay $1,830 in Indiana but $0 in Illinois. Retirees should weigh this against the property tax gap.
Bottom line: For a working household earning $150,000, Indiana's 3.05% flat tax saves roughly $2,850 per year over Illinois's 4.95%—and the property tax savings on a typical home can double that advantage.
Tax at Different Income Levels
| Income | Illinois Total Tax | Indiana Total Tax | Annual Savings |
|---|---|---|---|
| $75,000 | $16,619 | $15,494 | Save $1,126 |
| $100,000 | $25,269 | $23,669 | Save $1,601 |
| $150,000 | $43,187 | $40,637 | Save $2,551 |
| $200,000 | $60,006 | $56,505 | Save $3,501 |
Based on single filer, standard deduction, 2025 tax year. Includes federal income tax, state income tax, and FICA.
Why the difference
You'd save $1,601/year ($133/month) in Indiana vs Illinois.
Tax structure
Illinois has a flat 5.0% state income tax, while Indiana has a flat 3.0% state income tax.
Effective rate at your income
At $100,000, Indiana's effective state rate is 2.6% vs 4.2% in Illinois — a 1.6 percentage point gap.
Tip: The flat 4.95% rate means your effective state tax rate is close to 4.95% regardless of income — no progressive bracket benefit. Property taxes in Cook County (Chicago) can exceed $6,000-$10,000 on a median-value home.
Tip: With a flat tax rate, your effective state rate is predictable and consistent. Focus tax reduction on pre-tax contributions (401k, HSA) and any state-specific deductions or credits available.
Understanding Each State
Illinois
Illinois has a flat income tax rate of 4.95% on all taxable income. While the rate is moderate compared to states like California or New York, Illinois's high property taxes (average ~2.08%, second-highest nationally) significantly increase the total tax burden, particularly for homeowners.
Tip: The flat 4.95% rate means your effective state tax rate is close to 4.95% regardless of income — no progressive bracket benefit. Property taxes in Cook County (Chicago) can exceed $6,000-$10,000 on a median-value home.
Indiana
This state uses a flat income tax rate, meaning the same percentage applies to all taxable income regardless of how much you earn. This simplifies tax planning but means there is no bracket benefit for lower earners. The effective rate is very close to the headline rate after deductions.
Tip: With a flat tax rate, your effective state rate is predictable and consistent. Focus tax reduction on pre-tax contributions (401k, HSA) and any state-specific deductions or credits available.
Key Comparison Points
Income tax structure: Illinois has a flat income tax (4.95% flat), while Indiana has a flat income tax (3.05% flat).
Beyond income tax: State tax comparisons should also consider property tax rates, sales tax, and cost of living. A state with no income tax may have higher property or sales taxes that offset the savings.
SALT deduction cap: Under OBBBA (2025+), the federal SALT cap is $40,000, phasing out above $500,000 MAGI toward a $10,000 floor. This limits the federal tax benefit of living in a high-tax state, so the gross state tax difference remains close to the net difference for most earners — especially high earners inside the phaseout.
Frequently asked questions
Is it cheaper to live in Illinois or Indiana?
Based on income tax alone, Indiana has a lower tax burden. At $100K income, you'd save $1,601 annually in Indiana compared to Illinois. However, total cost of living also depends on property taxes, sales taxes, and housing costs.
How much would I save moving from Illinois to Indiana?
A single filer earning $100,000 would save approximately $1,601 per year in total taxes by living in Indiana instead of Illinois. At $150,000 income, the savings change to $2,551 per year.
What is the income tax rate in Illinois?
Illinois has a flat income tax with rates of 4.95% flat.
What is the income tax rate in Indiana?
Indiana has a flat income tax with rates of 3.05% flat.