How to Do Payroll in Indiana

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The “indiana tax withholding form” is a document that the employer needs to file with the Indiana Department of Revenue. The form contains information about how much income tax should be withheld from different types of wages and salaries.

In addition to federal payroll restrictions, you’ll need to follow several state rules while doing payroll in Indiana. Indiana, for example, has a state income tax of 3.23 percent, as well as county income taxes. You’ll have to figure out withholdings for both. There are also Agreements of Reciprocity in place with five states, which means you’ll withhold taxes depending on where workers reside versus where they work if they’re in one of the alternative jurisdictions. The rest of the payroll and human resources rules are quite easy.

Gusto is a great option if you need assistance calculating and processing your Indiana payroll. It pays workers by check or direct deposit and keeps track of payroll and tax rules in all 50 states, as well as counties, so you don’t have to worry about fines for errors or late payments. Sign up for a 30-day free trial.

Gusto is a great place to visit.

A Step-by-Step Guide to Payroll Processing in Indiana

Step 1: Register your company as an employer. You must apply for a federal employer identification number (FEIN) and an account in the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2: Register with the Indiana state government. INTIME, Indiana’s taxpayer information management engine, is where you may register your company. You’ll need your EIN, business name and address, as well as the names of the company’s officials. Then, to submit your taxes and other papers, establish a user account. In order to pay state Unemployment Benefits taxes, you must also register as a new firm on the Uplink Employer Self Service website.

Step 3: Create a payroll system. You’ll need to set up a payroll procedure and a regular payout schedule, at least semimonthly or bimonthly. Determine how you’ll pay workers, how long each pay period will last, and how you’ll gather employee forms and other payroll papers.

Collect employee payroll paperwork in step four. Some Forms for Payroll are best completed during the onboarding process. W-4, I-9, and Direct Deposit information are among the forms. The WH-4 or WH4MIL, as well as the WH-47 for workers who reside in reciprocal states, are required for Indiana.

Collect, evaluate, and approve time sheets in step 5. You’ll need to keep track of your hourly or nonexempt workers’ working hours if you have them. Most firms utilize time and attendance software or make their own time sheets; our free time card calculator helps guarantee that your totals are accurate. Make sure you have enough approvals so you can pay workers within 10 days of the end of the pay period, and if the usual payday falls on a nonworking day, make sure you pay the day before.

Step 6: Work out your payroll and pay your staff. Payroll can be calculated with software, a calculator, or even Excel.

Step 7: File payroll taxes with both the federal and state governments in Indiana. For federal taxes, including unemployment, follow the IRS’s guidelines.

Indiana Income Taxes: Withholding taxes must be submitted online on a regular basis. Even if you don’t owe anything, you must continue to submit withholdings if you have done so in the past. Your withholdings are re-evaluated by the state every year, and you are given a plan to follow. New enterprises adhere to a timetable that has been established based on expected withholdings.

State Unemployment Taxes (SUTA): Use the Uplink Employer Self Service website to pay SUTA online. You may manually input data or use a CSV file to do so. If you have more than 50 workers, you’ll need a CSV or ICESA file.

Step 8: Keep track of your payroll data. Employee records must be kept for at least three years in Indiana. As required by the Federal Labor Standards Act, contact information and other data should be included. More information about keeping payroll records may be found in this article.

Step 9: Complete your year-end payroll tax returns. Send the W-2 (for workers) and 1099 (for non-employees) federal forms (for contractors). In addition, you must complete the Indiana WH3 yearly withholding form. This must be done online if you submit more than 25 withholding statements in a given year.

Learn more about how to conduct payroll on your own in our tutorial, which includes a free checklist you can download to ensure you don’t forget anything.

Indiana Payroll Laws, Taxes & Regulations

You must obey federal law for income taxes, Social Security, Medicare, and federal Unemployment Benefits, regardless of where you live (FUTA). You’ll have to deduct 6.2 percent of each employee’s income for Social Security and 1.45 percent for Medicare taxes, and you’ll have to equal that amount from your bank account. FUTA is a 6% tax on earnings up to $7,000 per year. Learn more about FICA taxes and FUTA in this article.

Taxes in Indiana

Taxes in Indiana are 3.23%, with county taxes from 0.5% to 2.864%. There are Agreements of Reciprocity for five states you need to be aware of. SUTA runs from 0.5% and 7.4%.

Income Taxes in Different States

Indiana has a 3.23 percent flat tax rate. Each county, on the other hand, levies taxes ranging from 0.5 percent to 2.864 percent. The employee’s Indiana county of residence as of January 1 of the tax year determines withholdings. If they reside outside of the state, use the county where their business is located.

The deduction tables, as well as county codes and rates, may be found on the Indiana Department of Revenue’s website. One table is for personal deductions, and the other is for dependent exemptions. The exemptions are listed on the WH-4 form.

Agreements of Reciprocity

Indiana has Agreements of Reciprocity with Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. All salaries, wages, tips, and commissions earned in these states by an Indiana resident must be reported as if they were earned in Indiana. Similarly, residents of these states that earn income in Indiana need to report and pay tax on that income to their state of residence. Out-of-state employees need to fill out a Form IT-40RNR if they earn wages, salaries, tips, or commissions.

For more information on Indiana’s Agreements of Reciprocity, check out this Information Bulletin.

Unemployment Benefits

You need to pay Unemployment Benefits if you paid a dollar or more in remuneration to a covered worker, have acquired part or all of a business that pays state unemployment taxes (SUTA), are a liable entity in another state, and have workers in Indiana. Some entities are exempt, however, such as churches, some agricultural businesses (it depends on how much you pay in wages and how many people you employ), and nonprofits.

Workers in seasonal occupations are only eligible for unemployment benefits if they lose their positions during the operational season. As a result, if you recruit for seasonal jobs, such as tourist attractions, having the positions classed as seasonal helps minimize your SUTA. To qualify, these vocations must be significantly different from year-round employment. More information may be found in the employee handbook.

Indiana’s state Unemployment Benefits tax is on the first $9,500 of an employee’s income and runs between 0.5% and 7.4%, with the new employer rate at 2.5%. Your rates are based on your experience balance as of June 30 and your past 36 months’ payroll. There is also a penalty rate of 2% if you fail to pay your premiums within 10 days of the date requested by the Merit Rate Delinquency Notice. You should receive a notice with your applied rate, but you can find the rates and how to calculate your experience balance on the Indiana website.

Insurance for Workers’ Compensation

If you have one or more employees, you need to pay for Insurance for Workers’ Compensation—luckily, Indiana is one of the cheapest states in which to purchase workers’ comp. Several insurance companies offer policies. You do not need to include corporate officers in the coverage unless you wish to. Other exempt employees include casual workers, agricultural employees, household employees, and independent contractors.

You may apply to self-insure, but you must show that you have the financial means to compensate injured workers. You or your parent firm must have been in operation for a minimum of five years. You’ll need a surety bond of at least $500,000 to self-insure, and you’ll have to pay the state yearly fees to keep your certificate current.

Indiana’s Minimum Wage Laws

The minimum wage in Indiana remains at $7.25 per hour. When tips are applied, tipped workers must be paid at least $2.13 and get at least minimum wage. If they don’t, you’ll have to cover the difference. For the first 90 days on the job, employees under the age of 20 may be paid a training salary of $4.25 per hour. Furthermore, students who work part-time for up to 20 hours per week in specific industries, such as work-study programs, are exempt from the minimum wage.

In certain cases, such as common construction, you may be required to pay prevailing wages if they are higher than the minimum wage.

Regulations Regarding Overtime

Overtime is 1.5 times the employee’s usual compensation and covers all hours worked above 40 in a workweek. Any hourly or other nonexempt workers who qualify must pay this; failure to do so will result in penalties and fines.

There are a few exceptions:

Executives, administrators, and other professionals with a weekly salary of at least $455
Salespeople from the outside
Some people who work with computers (usually those who set their own hours)
Some agricultural, transportation, and farmworkers
Housekeepers who live on-site
Artists who get paid
Teachers who are certified

Use our free overtime calculator to make sure you don’t make any mistakes that cause you to overpay or underpay payroll taxes.

Employees Can Be Paid in a Variety of Ways

Wages must be paid in cash, check, draft, or money order in Indiana, or by direct deposit. However, you cannot compel an employee to accept direct deposit. Employees must get their whole salaries (i.e., the pay card cannot take a percentage), or you must pay that percentage over and above the earnings received.

Pay Stub Regulations

Hours worked, amounts paid, and a summary of deductions are all required on pay stubs in Indiana. It’s a simple process that can be completed using payroll software.

If you’re still doing your own payroll, one of our free pay stub templates may help you easily make your own pay stubs.

Minimum Pay Period

Wages must be paid at least semimonthly or bimonthly, and no later than 10 business days after the pay period ends. Employees might request biweekly pay, and you must comply.

Payroll Deduction Regulations

Indiana cannot deduct more than 25% of an employee’s disposable weekly earnings or the amount by which the employee’s disposable weekly earnings exceed 30 times the federal minimum hourly rate. Indiana permits deductions for the following items when mandated by law or by a court order, and when requested by the employee:

Premiums for insurance
Donations to charity
Purchase of the employing company’s bonds, securities, or stock
Dues to labor unions
Employer-provided merchandise to employees.
The amount of the employer’s loan to the employee.
Healthcare
Purchases of uniforms or equipment are limited to the lesser of $2,500 per year ($48.08 weekly) or 5% of the employee’s weekly disposable income.
Reimbursement for education or employee skills training, unless the education or employee skills training was given as part of a federal, state, or local economic development incentive program.
A salary advance or vacation pay advance
At the employee’s written request, the employer provides merchandise, products, or food for the employee’s benefit, use, or consumption.

Laws Regarding Final Paychecks

You must pay the last payment by the following regular payday if an employee quits your company, whether permanently or temporarily. Any earned PTO or vacation pay must be included in the last paycheck. There is no legal need for you to give severance compensation. If you decide to do so, make sure it’s spelled out in the employment contract.

Paid Time Off (PTO) has been accrued.

There are no paid time off or vacation restrictions in Indiana. As a result, it’s up to you to establish rules throughout the employment process. You are legally bound by any agreements you make. Vacation time is considered delayed pay.

Sick Leave with Pay

Indiana does not require you to pay for sick leave. However, if you do agree to Sick Leave with Pay, then you cannot deny anyone benefits or lesser benefits based on age, disability, race, color, sex, national origin, or religion.

The Indiana Family Leave Act was enacted in 1995.

The federal Family Medical Leave Act is followed in Indiana. Employers with at least 50 workers in the current or preceding year are covered by the federal FMLA. Employees may take up to 12 weeks of unpaid vacation in a 12-month period to bond with a new child, deal with major health issues, or deal with problems from a family member serving in the military. In our post on federal labor laws, we go through the FMLA in greater detail.

Payroll-Related HR Laws in Indiana

In most cases, Indiana’s laws rely on federal law or contracts. However, in July 2021, the regulations governing the employment of children changed, and they need to be discussed.

Reporting of New Hires in Indiana

You must record new recruits or rehires who return to work after being laid off, dismissed, furloughed, separated, or granted unpaid absence for more than 60 days. Do this on the new hiring website within 20 days of being hired or rehired. The instructions provided will walk you through the process of completing the report. You must provide the employee’s name, address, Social Security number, and date of hiring, as well as your company’s name, address, and Federal Employer Identification Number (FEIN).

Requirements for Lunch and Other Breaks

You are not required to give lunch breaks to workers of any age in Indiana. (Minors’ required breaks have been eliminated.) Default to federal law, which states that you are not required to give breaks; nevertheless, if you do, you must pay for brief pauses, but not for legitimate lunch breaks during which the employee is not working. Meal breaks are typically 30 minutes or more, however they might be shorter depending on the situation.

Nursing Moms’ Breaks: Indiana mandates you to give nursing mothers time to express breast milk. They also require a private area (not the bathroom) as well as a refrigerator or cold storage area to store the milk until the end of the workday.

Minors in the Workforce

In the news: Starting July 1, Indiana will no longer require companies to get a work permit in return for reporting minors’ employment to the Indiana Department of Labor’s Youth Employment System. Employers having five or more workers under the age of 18 are subject to this law. All prior work permits must be kept on file for two years. Visit the Indiana government website for further information.

Indiana, of course, follows federal legislation prohibiting children from working in dangerous industry. It has just revised its list of minors’ forbidden jobs. Here are a few examples, but for more information, including exact definitions, see the Youth Employment page.

For 14 and 15-year-olds, there is a large list of vocations that are illegal. The authorized lists are more condensed. Here’s a sample of what you’ll find:

Work in an office or as a clerical assistant
Cashiering
Selling
Modeling
Putting together orders
Errands to run
Work on the cleanup/maintenance of the grounds
Work that is either intellectual or aesthetic
The job of a lifeguard (15 years and up)
Work in agriculture

The hazardous labor regulation does have several exceptions. 14-year-olds, for example, are not permitted to operate a tractor unless they are members of 4-H and have completed particular orientation classes.

The following vocations are illegal for 16 and 17-year-olds:

Working with explosives or in the explosives industry
Mining of coal
forestry, logging, and forest firefighting
Operations in a sawmill
Working with radioactive materials
Bakery machine operation
Using circular and other types of powered saws
Roofing
Excavation

There are several exceptions, such as with some work-study programs.

During the school year, 14- and 15-year-olds may only work from 7 a.m. to 7 p.m., and from 7 a.m. to 9 p.m. from June 1 to Labor Day. During school days, they may work three hours every day for a total of 18 hours per week. They may labor for up to eight hours on non-school days. They may work up to 40 hours per week during non-school weeks.

Except on school evenings, the hours for 16-year-olds are extended to 6 a.m. to 11 p.m. Then it’s ten o’clock. They may work nine hours per day during school weeks, 40 hours per week during non-school weeks, and 48 hours per week during school weeks.

On school nights, seventeen-year-olds may work between 6 a.m. and 10 p.m., or 11 p.m. with parental consent. On school weeks, they may work nine hours a day, 40 hours a week, or 48 hours on non-school weeks.

Forms for Payroll

You’ll pay withholding taxes through INTIME, but the other Forms for Payroll you need are available in PDF that you can download or fill out online.

W4 Form for Indiana

The WH-1 is Indiana’s withholding exemption form. The WH-1U is for underpayments, while the WH3 is for withholding at the end of the year. Only INTIME is used to file them.

Other State of Indiana Payroll and Tax Forms

Employees fill out the WH-4 exemption form. To seek a tax exemption, nonresident military spouses need fill out the WH-4MIL form.

WH-47: Non-Indiana citizens who live in reciprocal states must have a certificate of residency.

Find other Forms for Payroll on the Indiana government website.

Federal Forms for Payroll

W-4 Form: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
W-2 Form: This form is used to report total yearly earnings (one per employee)
W-3 Form: Reports all workers’ total pay and taxes.
Form 940: This form is used to report and compute the amount of unemployment taxes owed to the IRS.
Quarterly income and FICA taxes deducted from paychecks are reported on Form 941.
Annual income and FICA taxes deducted from paychecks are reported on Form 944.
1099 Forms: Information on non-employee remuneration that assists the IRS in collecting taxes on contract labor.

For a more detailed discussion of federal forms, check out our guide on federal Forms for Payroll you may need.

Payroll Tax Resources/Sources in Indiana

Conclusion

The county taxes and Agreements of Reciprocity with neighboring states bring some complexity to Indiana’s payroll taxes, but otherwise, it’s reasonably straightforward. You’ll need to pay withholdings monthly, quarterly, or annually, depending on how much you withhold. SUTA is charged quarterly. There’s also Insurance for Workers’ Compensation to consider, and you have some leniency when scheduling minors. Overall, however, the process is straightforward, and there are documents on the Indiana government website to guide you.

The “indiana withholding tax registration” is a form that employers in Indiana must fill out and send to the state. The form will help determine how much taxes are owed to the state.

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