Article
Senate Enrolled Act 1 (SEA1): A new approach to Indiana’s local income tax structure
May 27, 2025 · Authored by Paige E. Sansone
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.
| Local Income Tax (LIT) | Type | Maximum rate | Maximum combined rate |
| County services | Expenditure | 1.20% | |
| Fire protection and EMS | Expenditure | 0.40% | |
| Nonmunicipal (1) | Expenditure | 0.20% | |
| Maximum combined rate | 1.70% | ||
| Municipalities population <3,500 | Expenditure | 1.20% | |
| Municipalities population at least 3,500 | Expenditure | 1.20% | |
| Maximum combined expenditure rate – by taxpayer | 2.90% | ||
| Special purpose | Special purpose | Based on legislation | |
| Notes: (1) For any given unit type, the tax rate may not exceed 0.05% | |||
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: Analyze how the expiration of current LIT rates and the introduction of new capped rates will affect your community’s revenue streams.
- Engage stakeholders: Coordinate with local officials, emergency service providers and non-municipal entities (e.g., libraries) to align funding needs and timing. Begin internal discussions and public outreach.
Other legislative changes
In addition to the changes to the Local Income Tax (LIT) structure, the recently concluded legislative session introduced several updates to the local government funding framework. Changes to the homestead reduction regime, a new assessment deduction for the 2% categorized properties and changes to Business Personal Property (BPP) assessments were all included in the Bills which have been signed into law. The collective impact of these legislative changes should be assessed holistically, even though certain projects or local initiatives may focus on specific aspects of the session’s outcomes.
If you have any questions or need further clarification on the recent changes to LIT or other legislative changes, contact a Baker Tilly specialist today.
