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Indiana Tax Law Changes

Indiana Information Bulletin #119 RBSK PartnersIndiana Tax Law Changes

During the 2021 session of the Indiana General Assembly, legislation was passed and signed by the Governor in relation to the federal Internal Revenue Code as of March 31, 2021. This includes all federal tax law changes made in 2020 and through March 31, 2021.

However, by statute, there are instances where Indiana does not follow all of the applications in the federal Internal Revenue Code. The Indiana Department of Revenue issued Information Bulletin #119 earlier this week which includes:

  • Items for which Indiana does not follow federal treatment
  • Items for which Indiana follows federal treatment
  • Items that Indiana followed federal treatment both before and after the Indiana General Assembly Session


Highlights of the items for which Indiana does not follow federal treatment include:

Above the Line Charitable Contribution Deduction

Full-year Indiana residents: the amount of the qualified charitable must be added back in determining adjusted gross income for the 2020 tax year.

Part-year Indiana residents: only the portion deducted for federal income tax purposes and paid while an Indiana resident must be added back.


Student Loan Payments by an Employer

For taxable years of an employee beginning after December 31, 2019, employees are required to add back the amount of such payments made by the employer and excluded from the employee’s gross income. This addback applies regardless of whether the employer makes the student loan payments to the employee or directly to the lender.


Business Meal Deductions

For business meals paid in 2021 and 2022, federal tax law allows a 100% deduction.

Indiana has enacted provisions specifically allowing up to a fifty-percent deduction as a general rule and also will recognize certain exceptions.


Unemployment Benefits

Indiana does not follow the federally permitted $10,200 per individual exclusion for unemployment compensation, provided that the taxpayer had adjusted gross income of less than $150,000.

The amount of unemployment compensation otherwise excluded must be added back into Indiana adjusted gross income. However, there is a deduction worksheet provided for Indiana that may allow some of the unemployment compensation to be deducted for low income taxpayers.


Student Loan Debt Discharge

Student loans discharged between January 1, 2021, and December 31, 2024, inclusive, are excluded from federal gross income. Student loans discharged pursuant to this section are required to be added back into Indiana adjusted gross income.

There are exceptions to this, include discharges while the borrower is insolvent.


Employee Retention Credit—Federally Disallowed Deductions

Indiana enacted provisions that permit the federally-disallowed wage deductions for the amount of this credit as deductions in determining Indiana adjusted gross income.

However, this allowance only pertains to wages disallowed for federal income tax purposes related to the coronavirus-related employee retention credit. Wage deductions disallowed under the disaster-related employee retention credit continue to be disallowed for Indiana adjusted gross income tax and financial institutions tax purposes.


View the Information Bulletin #119 in its entirety, including the 2020 revised unemployment compensation worksheet.

For more information visit our COVID-19 Guidance Center.

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