Income Tax Information Bulletin #28 - Application of State and County Income Taxes to Indiana Residents and Nonresidents

Sep 19, 2026

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Income Tax Information Bulletin #28 explains how Indiana state and county income taxes apply to full-year, part-year, and nonresident taxpayers with out-of-state income or Indiana-source income. It clarifies filing requirements using IT-40 and IT-40PNR, how income is classified as Indiana-source, and how compensation is treated when services are performed outside Indiana. It also provides guidance on state tax agreements, including credit eligibility and required documentation, and notes that the bulletin is nonbinding while aligning with Indiana statutes and court decisions.

LanguageEnglish

CategoryLetters

FormatPDF

Pages8

Reading Time3 min

AccessFree to download

Summary of Changes

Introduction

Income Received from Indiana Sources

State Tax Agreements

Income Tax Information Bulletin \#28 Subject: Application of State and County Income Taxes to Residents with Out-of-State Income and Nonresidents with Indiana Source Income Publication Date: December 2024 Effective Date: Upon Publication References: IC 6-3-1-3. 5; IC 6-3-1-12; IC 6-3-1-13; IC 6-3-2-2; IC 6-3-2-27. 5; IC 6-3-3-3; IC 6-3-4-15; IC 6-3-5-1 Replaces Bulletin \#28, dated November 2023 Disclaimer: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein. Summary of Changes Other than nonsubstantive, technical changes, this bulletin has been updated to clarify treatment of compensation when a nonresident performs services outside Indiana and to provide guidance regarding the income tax exemption for compensation for employees who work in Indiana 30 days or less per year. Introduction Full-year Indiana residents must report all income that is reported for federal income tax purposeson their Indiana individual income tax return (Form IT-40) . This includes all income, even if it is derived from sources outside Indiana. Full-year nonresidents who received income from Indiana sources must file an Indiana individual income tax return (Form IT-40PNR) . They are subject to tax on that part of their total federal income that is derived from or connected with Indiana sources. If the nonresident’s only Indiana source income was from an Indiana partnership or S corporation, the nonresident shall be included in the entity’s composite return and is not required to file Form IT-40PNR, though the individual may file a Form IT-40PNR if the individual chooses to do so. Part-year Indiana residents must file an Indiana individual income tax return (Form IT-40PNR). They are subject to tax on that part of their total federal income that was received while they were residents of Indiana. In addition, they are also taxable on income from Indiana sources received while they were nonresidents of Indiana. If a joint federal income tax return is filed, a joint Indiana return is also required. If separate federal income tax returns are filed, separate Indiana returns are also required. If one spouse is a full-year Indiana resident, the other spouse is a nonresident for all or part of the year, and the spouses file a joint federal income tax return, the couple must file a joint Form IT-40PNR, reporting their respective incomes as stated above. Income Received from Indiana Sources Income received from Indiana sources is considered Indiana income to nonresidents, except certain types of Indiana source income subject to tax only by the taxpayer’s state of legal residence. Interest, dividends, royalties, and gains from the sale of capital assets are subject to tax only by the taxpayer’s state of legal residence unless such income results from conducting a trade or business in Indiana or from the sale of real or tangible personal property located in Indiana. Ifa trade or business is conducted in Indiana, or real or tangible personal property is located in Indiana, the income should be reported as Indiana income. Income from a qualified pension, annuity, or profit-sharing plan is subject to tax by the taxpayer’s state of legal residence. Lump sum distributions from qualified plans are subject to tax by the state that, at the time of distribution, is the taxpayer’s state of legal residence. Deferred compensation other than from a qualified retirement plan, accumulated vacation, bonus, severance, sick pay, or income from a stock opti

FAQs

Who must file Indiana individual income tax returns under Bulletin #28?

Full-year Indiana residents file Form IT-40 and report all federal income, including income sourced outside Indiana. Full-year nonresidents with Indiana-source income file Form IT-40PNR (with an exception for certain partnership or S corporation composite return situations). Part-year residents file Form IT-40PNR and are taxed on Indiana income received while residents and on Indiana-source income received while nonresidents.

When is income from outside Indiana treated as Indiana-source for nonresidents?

Bulletin #28 states that interest, dividends, royalties, and capital gains are generally taxable only by the taxpayer’s state of legal residence unless they result from conducting a trade or business in Indiana or from selling real or tangible personal property located in Indiana. In those cases, the income should be reported as Indiana income.

How does Bulletin #28 treat compensation for services performed outside Indiana?

For nonresidents, compensation is earned in the state where services are actually performed, regardless of whether the compensation is paid by an Indiana-based employer. The bulletin also clarifies treatment when services are performed outside Indiana and provides guidance on the income tax exemption for employees who work in Indiana 30 days or less per year.

What documentation is required to claim Indiana income tax credits related to taxes paid to other jurisdictions?

Indiana allows credits only for individual income tax paid to other states or localities. To claim the credit, taxpayers must provide a worksheet showing how the credit was computed and include required supporting items such as a copy of the other state’s tax return when filed. For credits tied to pass-through entities or foreign taxes, additional statements like K-1 equivalents or Federal Form 1116 are required, with other statement types handled case-by-case.

Sep 19, 2026

Upload by Mabel