Indiana

Discussion

Indiana: New Law Aligns State with OBBB Deductions

Effective July 1, 2026, SB 243 creates new state income tax deductions for “qualified tips” and “qualified overtime compensation,” mirroring the federal deductions established under the federal One, Big, Beautiful Bill (OBBB). The deductions apply retroactively to the 2026 tax year only (tax years beginning after December 31, 2025, and ending before January 1, 2027) and allow individual taxpayers to deduct from Indiana adjusted gross income the same tip and overtime amounts already deducted at the federal level. While this is primarily an individual income tax benefit rather than a new employer obligation, employers should ensure tips and overtime compensation are accurately reported on employees’ W-2s or other information returns, since accurate federal reporting is what allows employees to claim both the federal and state deductions.

 

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