Indiana State Tax Credits

Indiana School Scholarship & Tax Credit Program

Overview:
The Indiana School Scholarship & Tax Credit Program offers a 50% state tax credit to individuals and corporations who donate to approved Scholarship Granting Organizations (SGOs). These donations help fund private school scholarships for Indiana students from lower- to middle-income families.

Who It’s For:
Indiana individuals and businesses looking to support education through charitable donations while reducing their state income tax liability.

Four Key Highlights:

1. 50% Tax Credit for Donations

   • Donors receive a 50% Indiana state income tax credit on contributions made to approved SGOs — a significant direct reduction in tax liability.

2. Eligibility and Household Income Limits for Students

   • Scholarships benefit students aged 4 to under 22, with family income at or below 400% of the federal free/reduced-price lunch limits.

3. $18.5 Million Annual Statewide Cap

   • Credits are issued first-come, first-served until the $18.5 million statewide cap is reached each fiscal year starting July 1.

4. Simple Application and Donation Process

   • Donors must verify credit availability, donate to a qualified SGO, and claim the credit when filing their Indiana state taxes.

Indiana529 Savings Plan Tax Credit

Overview:
The Indiana529 Savings Plan Tax Credit offers a 20% state income tax credit for contributions made to Indiana CollegeChoice 529 accounts. It's designed to encourage saving for qualified education expenses, including college, K-12 tuition, and apprenticeship programs.

Who It’s For:
Indiana taxpayers (single, married filing jointly, or married filing separately) who contribute to Indiana-based 529 college savings accounts for their children, grandchildren, themselves, or other beneficiaries.

Four Key Highlights:

1. 20% Credit Up to $1,500 Annually

   • Taxpayers can receive a 20% credit on contributions, capped at $1,500 per year for joint filers or $750 for married individuals filing separately.

2. Eligible for K-12, College, and Apprenticeship Savings

   • Contributions cover a broad range of expenses, including K-12 tuition (up to $10,000/year per beneficiary), college costs, and approved apprenticeship program expenses.

3. Strict Contribution and Usage Rules

   • Contributions must be cash-based (not rewards points or rollovers), and nonqualified withdrawals may trigger recapture (repayment) of up to 20% of the withdrawn amount.

4. No Carryforward, Carryback, or Sale of Unused Credits

   • The credit is use-it-or-lose-it annually—no carryforward, carryback, refund, or transfer is allowed if not used within the filing year.

Indiana Individual Development Account (IDA) Tax Credit Program

Overview:
The Indiana IDA Tax Credit Program offers a 50% state income tax credit to donors who support the matched savings accounts of low- to moderate-income Hoosiers. These contributions help participants save for key assets like education, homeownership, business creation, or vehicle purchases while receiving financial education.

Who It’s For:

• Low- to moderate-income Indiana residents saving for approved asset purchases through an IDA.

• Individuals or businesses who want to donate to fund IDAs and receive a state tax credit.

Four Key Highlights:

1. 50% State Income Tax Credit for Donors

   • Donors receive a 50% tax credit on contributions made through approved IDA administrators, directly reducing their Indiana state income tax liability.

2. Matched Savings for Participants – $3 for Every $1 Saved

   • Eligible participants can receive up to $4,500 in matching funds, helping them build assets like a first home, small business, or access to education.

3. Strict Usage Rules for Savings and Donations

   • IDA funds must be used for approved assets only; donors must ensure contributions go through certified IDA administrators.

4. $200,000 Statewide Credit Cap – First-Come, First-Served

   • Indiana offers only $200,000 in total credits annually, and credits must be used in the tax year awarded — no carryforward is allowed.

Venture Capital Investment (VCI) Tax Credit

Overview:
The VCI Tax Credit incentivizes investments in Indiana-based early-stage businesses and investment funds by offering tax credits to investors. It aims to improve access to capital for high-growth Indiana companies while providing tax advantages to individuals and corporations investing in innovation.

Who It’s For:
Individual and corporate investors looking to invest in qualified Indiana startups or venture funds and receive substantial tax credits in return.

Four Key Highlights:

1. Up to 30% Tax Credit for Investments in Indiana Startups

   • Investors can receive 25% tax credits for investing in a Qualified Indiana Business (QIB) and up to 30% for investing in women- or minority-owned businesses (W/MBEs).

2. Wide Applicability – Equity and Debt Investments Qualify

   • Equity investments and unsecured debt investments (outstanding for 36+ months) can qualify, offering flexibility for different investment strategies.

3. Generous Carryforward and Transfer Options

   • Unused credits can be carried forward for 5 years, and investors are allowed to transfer certified credits to other taxpayers, enhancing the flexibility of use.

4. Statewide Credit Cap of $20 Million – First-Come, First-Served

   • The program is subject to an annual $20 million cap, with $7.5 million reserved for investments in qualified Indiana investment funds (QIIFs) — so early application is crucial.

Hoosier Business Investment (HBI) Tax Credit

Overview:
The HBI Tax Credit is a performance-based incentive program that rewards businesses investing in new capital projects and creating full-time jobs in Indiana. It helps reduce corporate tax liability for companies that make substantial new investments benefiting Indiana’s economy.

Who It’s For:
Businesses planning major capital investments (e.g., new equipment, manufacturing facilities) that will create net new, full-time jobs for Indiana residents and need a financial incentive to proceed.

Four Key Highlights:

1. Flexible Credit Based on Project’s Economic Impact

   • The Indiana Economic Development Corporation (IEDC) determines the credit percentage through a cost-benefit analysis, rewarding projects that bring the most value to Indiana.

2. Capital Investment Focus – Machinery, Manufacturing, Construction

   • Eligible investments include new machinery, modernized manufacturing equipment, and building construction costs, encouraging real, tangible economic development.

3. Nonrefundable Credit with Annual Reporting Obligations

   • The credit reduces state tax liability but cannot be refunded if it exceeds taxes owed. Approved businesses must submit detailed annual reports for 10 years to maintain compliance.

4. Requires Strong Local Support and Economic Justification

   • To qualify, businesses must show that local governments are offering incentives, and that the project would not proceed without the HBI credit — ensuring only high-impact projects benefit.

Health Reimbursement Arrangement (HRA) Tax Credit

Overview:
The Indiana HRA Tax Credit offers small employers a state tax credit for transitioning from traditional group health insurance to Health Reimbursement Arrangements (HRAs). It rewards up to $400 per employee in the first year and $200 in the second, supporting flexible, cost-effective employee health benefits.

Who It’s For:
Indiana-based employers with fewer than 50 employees who want to offer healthcare benefits through an HRA instead of a traditional group insurance plan and reduce their tax burden.

Four Key Highlights:

1. First Two Years Only – $400 and $200 Per Employee

   • Employers receive a $400 tax credit per employee in the first year of offering an HRA and $200 per employee in the second year—no credit is available starting the third year.

2. Strict Employee and Plan Eligibility Requirements

   • Must have fewer than 50 employees and replace a traditional health insurance plan with an HRA (or, for new businesses, establish an HRA from inception).

3. $10 Million Statewide Cap – First-Come, First-Served

   • Credits are limited statewide to $10 million annually. Filing early is crucial because once the cap is hit, unprocessed claims are permanently disallowed.

4. 10-Year Carryforward, No Refunds or Transfers

   • Unused credit can be carried forward for up to 10 years, but cannot be refunded or transferred (especially important for pass-through entities like S-corps and partnerships).