Updated October 21, 2026. Quick answer: Indiana Schedule 2 is the deductions schedule that attaches to Form IT-40. For retirement income it has one dedicated line, line 6 for taxable railroad retirement benefits, while the military retirement and civil service annuity deductions are claimed by code under line 11. The schedule total on line 12 carries to line 4 of Form IT-40.
What this form does
Schedule 2 is headed “Schedule 2: Deductions” and is an enclosure to Form IT-40. Its line 12 reads “Add lines 1 through 11. Enter total here and on line 4 of Form IT-40.” Indiana retirement taxes covers how Indiana treats retirement income at the state level.
Three of its retirement-related items sit in different places. The booklet says so directly: “The military service deduction and the military retirement income and/or survivor’s benefits deduction are reported in two different places.” The railroad retirement deduction is on line 6, and the military retirement and civil service annuity deductions go under line 11, as the table below shows.
Who it applies to
For line 6 the booklet says “Indiana does not tax Social Security income or the railroad retirement benefits that are issued by the U.S. Railroad Retirement Board.” The amount comes from your federal return, as the table shows.
For military retirement, the booklet says the deduction is for those whose income includes it: “you (and/or your spouse, if married filing jointly and both qualify) may be eligible to take this deduction.” The booklet’s overview of the three military deductions adds “Individuals with military retirement income and/or survivor’s benefits may be eligible to deduct those benefits.” More on the state’s treatment is on Indiana military retirement.
For the civil service annuity, the booklet says “you may be eligible to take a deduction if you were at least 62 years of age by the end of the tax year and/or a surviving spouse of a civil service annuitant.” For a surviving spouse it adds “There is no age requirement for the surviving spouse.”
The lines, one by one
| Line | What the form says |
|---|---|
| Schedule 2, line 5 (beside it) | “Taxable Social Security benefits” |
| Schedule 2, line 6 | “Taxable railroad retirement benefits” |
| Booklet, lines 5 and 6 heading | “Taxable Social Security and/or Railroad Retirement Benefits Deduction” |
| Booklet, line 6 entry | “If you have included railroad retirement benefits that are issued by the U.S. Railroad Retirement Board on line 5b of your federal Form 1040/1040-SR, then enter that amount on Indiana’s Schedule 2, line 6.” |
| Booklet, lines 5 and 6 caution | “Do not enter any other types of pension or retirement income on these lines.” |
| Schedule 2, line 7 (beside it) | “Active military service deduction” |
| Schedule 2, line 11 | “Other Deductions: See instructions (attach additional sheets if necessary)” |
| Booklet, line 11 entry | “When claiming the deduction on Schedule 2 under line 11, write the name of the deduction, the three-digit code number and the amount claimed.” |
| Civil Service Annuity Deduction, code 601 | “The income on line 1 of Form IT-40 may include federal civil service annuity income.” |
| Code 601, entry | “Enter code 601 on Schedule 2 under line 11 if claiming this deduction.” |
| Military Retirement Income and/or Survivor’s Benefits Deduction, code 632 | “The income on line 1 of Form IT-40 may include military retirement income and/or survivor’s benefits.” |
| Code 632, enclosure | “You must enclose your military retirement income statement(s) and/or survivor’s benefit statement(s) with the tax return if you are claiming this deduction.” |
| Schedule 2, line 12 | “Add lines 1 through 11. Enter total here and on line 4 of Form IT-40.” |
The railroad amount is read from the same federal return line discussed on Form 1040 line 5a and 5b, and the military and civil service amounts come from the payer’s Form 1099-R (see 1099-R boxes explained). whether Indiana taxes pensions is the state-level companion to this page.
The figures the form prints
The civil service annuity deduction has a limit stated in one running list item of the booklet: “The lesser of the amount of taxable civil service annuity income included in federal adjusted gross income or $16,000”. The same entry subtracts “all amounts of Social Security income and tier 1 and tier 2 Railroad Retirement income” received by the annuitant.
It also says “If you receive a civil service annuity both for yourself and as a surviving spouse, the combined deduction cannot exceed $16,000.”
For military retirement the booklet states “For 2022 and later, the deduction is equal to the entire amount of military retirement income and/or survivor’s benefits.”
Where the result goes next
Each coded deduction is entered under line 11, and the schedule adds up on line 12: “Add lines 1 through 11. Enter total here and on line 4 of Form IT-40.” The booklet also directs that for the civil service annuity “You must maintain Form CSA 1099-R with your records”, and for military retirement it tells you to enclose your statements with the return.
A worked example
The booklet prints its own civil service examples. This is an illustration, not a state example, using invented amounts for a person who is 62 or older and files alone.
Suppose the taxable civil service annuity included in federal adjusted gross income is $10,000 and Social Security income received is $3,000. The lesser of $10,000 or $16,000 is $10,000 (computed). Subtracting $3,000 leaves $7,000 (computed), the amount that would go on the code 601 line.
The amounts are invented for the computation; your own figures come from your own annuity statement and your own return.
Edition and line numbers
This page reads the 2025 Form IT-40 Indiana Full-Year Resident Individual Income Tax Return booklet and the 2025 Indiana Schedule 2, Deductions for tax year 2025, the current file the Indiana Department of Revenue served on 2026-10-21. Check the edition printed on your own form and use that edition’s line numbers.
Common mistakes
- Putting other pension income on the railroad lines. The booklet says “Do not enter any other types of pension or retirement income on these lines.”
- Looking for the military retirement deduction on line 7. The booklet says it is reported “on Schedule 2 under line 11, Other Deductions.”
- Leaving out the support for a military retirement claim. The booklet says “You must enclose your military retirement income statement(s) and/or survivor’s benefit statement(s) with the tax return if you are claiming this deduction.”
Related: Indiana retirement taxes, whether Indiana taxes pensions, Indiana military retirement, Form 1040 line 5a and 5b, and 1099-R boxes explained.
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Answer againSources
- 2025 Form IT-40 Indiana Full-Year Resident Individual Income Tax Return booklet, Indiana Department of Revenue: forms.in.gov
- 2025 Indiana Schedule 2, Deductions, Indiana Department of Revenue: forms.in.gov
Read from the state revenue documents linked above on October 21, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the state revenue department is the right place to confirm anything consequential.