The Hidden Cost of Property Tax Relief: How Your County's Local Income Tax Might Rise to Replace SB 1 Cuts

Indiana homeowners are opening 2026 tax bills and — thanks to the $300 homestead credit, expanded supplemental deduction, and over-65 relief from SB 1 — many of those bills land lower than expected. That's the good news. The less-discussed part: local governments still have to pay for services, and SB 1 (Senate Enrolled Act 1-2025) answered that partly by rebuilding the local income tax (LIT).

The rebuild is not in effect yet. House Enrolled Act 1210-2026 (P.L.157-2026) delayed it by one year. The DLGF's July 17, 2026 memo says current LIT ordinances now expire January 1, 2029, and new ordinances may be adopted starting July 1, 2028, for collections starting in 2029. For planning-minded homeowners, the tradeoff is real, but it arrives in 2029, not 2026.

What SB 1 actually did to local revenue

Three pieces matter on the local-government side:

1. Levy growth stays limited. Under IC 6-1.1-18.5-2(e) and (f), as amended by SEA 1, the maximum levy growth quotient for civil units and school operations funds in 2024 through 2026 allows only 80% of the growth the normal formula would produce, capped at 4%. That is a growth limit, not a freeze at 2025 levels. (The "levy freeze" rate in IC 6-3.6-11-1 is an older LIT rate a handful of counties adopted years ago. Marion County's budget book dates its levy freeze to 2008 and 2009.)
2. One new county option now: the homestead-relief LIT. IC 6-3.6-6-3.1 lets a county fiscal body impose up to 0.3% to fund credits on homestead bills. After HEA 1210, it may not be imposed after December 31, 2028. Details are in our homestead-relief LIT explainer.
3. A new LIT structure starting January 1, 2029. The current expenditure rate (up to 2.5%, or 2.75% in Marion County, under IC 6-3.6-6-2) and property tax relief rates (up to 1.25% under IC 6-3.6-5-6) continue until then. After that, the county may adopt component rates totaling no more than 2.9%: up to 1.2% for county services, 0.4% for fire and EMS, and 0.2% for nonmunicipal units such as townships, with those three capped together at 1.7%, plus up to 1.2% for municipal services in smaller towns and unincorporated areas. Cities and towns with 3,500 or more residents may impose their own rate of up to 1.2% "beginning after December 31, 2028" (IC 6-3.6-6-22).

There is no separate 1.2% "replacement LIT" that counties could impose from July 1, 2025. Nothing in the 2026 Indiana Code provides one. The 1.2% figures belong to the 2029 structure.

The net effect for anyone looking 2–5 years out: the Indiana revenue base is shifting from property-only toward a property + income hybrid.

Where counties have landed so far

Counties have not adopted new-structure rates, because the law does not allow it until July 1, 2028. What has happened:

• Rates mostly held steady in 2026. In the DOR's Departmental Notice #1 effective October 1, 2026, only Boone County is marked as changing its rate since the January 1, 2026 notice. Marion County's total is 2.02%, the same rate the city's 2027 Proposed Budget Book shows for every year from 2023 through 2027.
• Counties are reshuffling inside current rates. For 2026, Marion County shifted its property tax relief rate and part of its levy freeze rate into certified shares and public safety. An ordinance filed with the 2027 budget continues that shift without raising the 2.02% total. Jay County's council voted to move forward with raising its public safety rate from 0.25% to 0.35% and cutting its levy freeze rate from 0.2% to 0.1%, subject to a public hearing (The Commercial Review).
• Counties and cities are negotiating. HEA 1210 added IC 6-3.6-3-13, which let each county convene a Municipal Unit Strategic Taskforce (MUST) before October 1, 2026 to seek a unanimous agreement on splitting future county and municipal rates. Jay, Shelby, Lawrence, and Jefferson counties are among those that moved to set one up. The DLGF must report any agreements to the Legislative Council before December 1, 2026.

Our county scoreboard tracks these actions. To check your own county's rate, use the DOR's Departmental Notice #1, which lists every county.

What the "net" looks like for your household

We are not publishing a "typical household" table. No county has a new SB 1 rate to model, and the property-tax side depends on your assessed value, deductions, district rate, and cap. You can run your own numbers:

• Property tax side: compare your 2025-pay-2026 bill to the prior year, including the 10% supplemental homestead credit (capped at $300) and any deductions. Our $300 credit walkthrough explains the credit.
• Income tax side: your county LIT is your county's rate in Departmental Notice #1 times your Indiana adjusted gross income after exemptions. If your county's rate did not change, your LIT did not change because of SB 1.

Who wins and who loses

As the shift toward income tax plays out from 2029, the pattern is predictable:

Wins:

• High-AV, low-income households — retirees with paid-off homes in growing neighborhoods. Big property-tax benefit, minimal LIT impact.
• Small businesses — the SB 1 package also raised the business personal property exemption to $2M.

Losses:

• Renters. You don't own the homestead, so the property-tax relief doesn't reach you directly (and landlords only partially pass savings through). But you pay LIT to your county of residence, so any future rate increase hits you in full.
• High-income, low-AV households. High earners in modest homes (young professionals, two-income with small starter homes) get more LIT exposure than homestead benefit.

Not a factor for most commuters: an Indiana resident pays LIT at the rate of the county where they lived on January 1, not the county where they work (IC 6-3.6-2-13; IC 6-3.6-8-3(b)). DOR tells employers to withhold for the employee's county of residence as of January 1. Only people who live outside Indiana on January 1 pay the rate of the Indiana county where they work.

Mixed:

• Owner-occupied middle-income households. Depends on what your county and city adopt for 2029 and how much homestead relief you receive. Worth modeling yearly.

The 2029 municipal layer

Beginning after December 31, 2028, cities and towns with 3,500 or more residents can impose their own LIT of up to 1.2% on their residents (IC 6-3.6-6-22). Their residents then pay the county's county-services, fire/EMS, and nonmunicipal rates (no more than 1.7% combined) plus the city's rate. Residents of smaller towns and unincorporated areas pay those county rates plus any municipal-services rate the county sets for them (up to 1.2%). Either way, the expenditure rate tops out at 2.9%.

What to watch:

• MUST agreements and the 2027 session. The DLGF's December 2026 report to the Legislative Council will show which counties and cities agreed on a split. Lawmakers have signaled more changes; see our interim study committee coverage.
• Renewal deadlines. A county's expenditure rate continues past 2028 only if the county adopts a renewal ordinance by October 1, 2028 (IC 6-3.6-3-4(c)). Property tax relief rates end December 31, 2028 (IC 6-3.6-1-3(b)).
• How school referendums interact. A municipality raising LIT for its general fund while the school corporation passes an operating referendum can stack meaningfully.

What to do as a homeowner

Short term:

1. Check your county LIT rate. Departmental Notice #1 lists every county's rate. An asterisk marks a county whose rate changed since the January notice.
2. Use the new DLGF transparency portal to confirm your 2026 property tax bill reflects the $300 credit, expanded supplemental deduction, and any over-65 credit you qualify for.
3. If your assessment itself looks off — the property-tax relief only works on a correct assessment. Our appeal process guide covers the evidentiary bar; our May 10 payment protection post covers the statutory payment shield available while your appeal is pending.

Medium term (2026–2028):

1. Attend your county council and city or town council meetings where LIT is debated. MUST meetings are subject to the Open Door Law, according to the DLGF.
2. Track your county of residence. Your LIT follows where you live on January 1; property tax applies where you own.
3. Model the net impact for your household. SB 1 isn't uniformly good or bad — it's a redistribution. Which side you land on depends on your specific AV, income, and county.

Bottom line

SB 1 reduced property tax bills in 2026 for most Indiana homeowners. Its local income tax overhaul, now delayed to January 1, 2029, shifts more of the local revenue burden toward income tax. The individual math depends on what your county and city adopt in 2028 and on your household's AV-to-income ratio. The 2029 municipal LIT makes the picture more fragmented, not less.

Watch your county and city through the 2028 adoption window, which opens July 1, 2028. That is the real signal for your 2029 tax bills. For the full timeline, see our explainer on the delayed overhaul.