Senate Enrolled Act 1 (SEA1): A new approach to Indiana’s local income tax structure

This legislation marks a significant shift in how local governments across Indiana can structure and utilize income tax revenues.

Changes starting in 2028

Senate Enrolled Act 1 (SEA 1) changes the structure of the Local Income Tax (LIT) starting with the 2028 budget. The legislation permits cities with populations of 3,500 or more to impose a 1.2% LIT for municipal services, while counties can implement a 1.2% LIT for county services. Additionally, counties may adopt further LIT rates to allocate funds to non-qualifying municipalities (those with populations under 3,500), fire protection and emergency medical service providers and specific non-municipal entities such as townships and libraries (schools are not included). Non-qualifying municipalities and non-municipal entities will need to petition the County to adopt the applicable LIT by July 1 of a given year (starting in 2027) for distribution the following year.

The aggregate expenditure LIT rate within a county, determined by the taxpayer's residence, is capped at 2.90%. The table below summarizes the new LIT rates for implementation in 2028. All current LIT rates (except Special Purpose) will expire on December 31, 2027.