Updated October 5, 2026. Quick answer: Yes. Indiana starts from federal adjusted gross income, and the Department of Revenue says the “Indiana Individual adjusted gross income tax rate for 2026 is 2.95%”, which “will adjust in 2027 to 2.90%”. Counties add their own income tax.
How Indiana treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate |
| 2026 rate | 2.95%, adjusting in 2027 to 2.90% |
| 2025 booklet | The booklet prints no rate sentence; its credit worksheet multiplies by .03 |
| Starting point | The booklet begins with the adjusted gross income from the federal Form 1040 |
| Other states’ bonds | Interest from a direct obligation of another state is “taxable by Indiana if the obligation is acquired after Dec. 31, 2011.” |
| Older bonds | “Interest earned from obligations held or acquired before Jan. 1, 2012,” is not added back |
| U.S. obligations | For a “direct obligation of the U.S. government, you can deduct this amount.” |
A $20,000 example
Taxable dividends and interest of $20,000 add $20,000 x 2.95% = $590 of Indiana tax at the 2026 rate, before any county tax.
What changes in 2026
The Department prints a 2026 rate of 2.95% and a scheduled 2027 rate of 2.90%.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Indiana taxes capital gains, whether Indiana taxes pensions, how Indiana taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- Rates, Fees & Penalties: Income tax rates: https://www.in.gov/dor/resources/tax-rates-and-reports/rates-fees-and-penalties/
- 2025 IT-40 Full-Year Resident Income Tax Booklet: https://forms.in.gov/Download.aspx?id=16915
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.