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.

In addition to the new LIT rates noted above, the County has the option to adopt a Property Tax Relief LIT rate of up to .3% specifically for Homestead Property Tax Relief; However, this LIT may only be implemented in 2026 and 2027. The expiration of the Property Tax Relief LIT at the end of 2027 may affect Circuit Breaker Tax Credits, potentially reducing property tax revenue to local units of government beginning in 2028.

What can you do?

• Evaluate eligibility and strategy: Determine whether your municipality or county qualifies to impose the new LIT rates and develop a strategy for the rate structure starting in 2028.
• Model revenue impacts and budget scenarios: