
Indiana lawmakers have approved a major overhaul of the state’s local income tax system, shifting decision-making power away from counties and toward cities and towns — a change that will require Fishers officials to decide in the coming years whether to enact a city income tax for the first time.
For decades, Indiana’s local option income tax (LIT) was primarily a county-level decision. Counties chose whether to impose an income tax and at what rate, and the revenue was collected countywide. The state then distributed those dollars to cities, towns, townships and other local units using a statutory formula.
In Hamilton County, that countywide income tax rate has been 1.1 percent. Fishers, Carmel, Noblesville, Westfield and other local governments each received a share of the revenue based on population and other factors set by state law. Cities did not control the tax rate directly and could not opt in or out independently.
That system is now changing under a sweeping tax reform package approved by the Indiana General Assembly in 2025 as part of broader property tax relief legislation.
Under the new law, existing countywide local income tax rates will expire after 2027. Beginning in 2028, counties and municipalities will each have the authority to adopt their own local income taxes within state-established limits.
For the first time, cities and towns — including Fishers — will be allowed to impose a municipal income tax directly on their residents. Cities with populations above 3,500 may adopt a local income tax rate of up to 1.2 percent. Counties will also be permitted to impose income taxes for county services, but under a restructured system.
State law caps the combined local income tax rate — county plus municipal — at 2.9 percent. That means any income tax adopted by Fishers would count toward that combined maximum along with any Hamilton County tax.
The change effectively ends the long-standing practice of pooling county income tax revenue and redistributing it to cities. Instead, local governments will be responsible for raising their own income tax revenue if they choose to do so.
For Fishers, the shift has significant budget implications. The city currently receives millions of dollars annually from Hamilton County’s local income tax distribution. Under the new system, that revenue source will disappear unless Fishers adopts its own municipal income tax. Mayor Scott Fadness has indicated he favors a city income tax, but there is no rate that has been suggested up to this point.
City officials are expected to begin discussing the issue during the 2026 and 2027 budget cycles, ahead of the 2028 implementation date. Any decision to enact a local income tax would require action by the Fishers City Council and would include public hearings.
Supporters of the new law say it gives cities more direct control over their finances and increases transparency by tying tax decisions more closely to the governments that provide services. Critics argue the change could pressure cities to raise income taxes to replace lost revenue tied to property tax relief.
For residents, the impact will depend on decisions made locally. While the overall local tax cap remains in place, Fishers’ future tax structure — and how city services are funded — will soon be determined closer to home.