Legislation conforming Indiana’s tax code to the exemptions on tipped and overtime income and car loan interest in President Trump’s 2025 tax law is headed to the desk of Gov. Mike Braun (R).
The omnibus tax reform bill (SB 243) provides the tax exemptions for only the 2026 tax year. The measure also decouples Indiana from the federal tax relief provisions for businesses, including the Section 168(k) bonus depreciation of assets provision and the Section 174(a) change permitting amortization for certain research and experimental expenditures.
Indiana is a static conformity state, meaning it aligns its tax code to the federal code at a fixed date. SB 243 essentially updates all references to the Internal Revenue Code through Jan. 1, 2026, without adopting many of the costly features. The bill was reworked several times over the last month, but the final amended version won unanimous support in the state Senate Wednesday. The state House passed the bill Feb. 23 by a vote of 77-19.
Braun is widely expected to sign the bill. In January he signed SB 212, a bare-bones tax law that conformed Indiana to some features of the federal code as of July 4, 2025—the date Trump signed the tax law.
Lawmakers chose an “abbreviated” approach to federal conformity because Indiana is in the middle of a two-year budget cycle and has limited flexibility to adopt the costliest features of the president’s signature tax law, said Natalie Goodwin, vice president of government affairs at the Indiana Chamber of Commerce.
“SB 243 primarily aligns Indiana with federal tax law through technical conformity updates and some structural coordination,” Goodwin said. “The more sweeping or high-cost tax policy changes will be a conversation we have next year. From the Chamber’s perspective we will be poring through that and talking with our membership about whether there are things in OB3 that we should be pushing for.”
A legislative fiscal analysis found conformity to the deduction on tipped income during the 2026 tax year could cost up to $35 million, and the overtime provision could top out at $98 million. The deduction for interest on auto loans is expected to cost the state $19 million.
The omnibus bill also includes language adapting Indiana to the federal phase out of the penny. The bill amends the sales tax code by requiring all amounts to be rounded down to the nearest 5 cents for cash transactions. Transactions conducted by credit and debit cards and other electronic means will continue to be calculated to the penny.
The legislation also includes a new strategy for cracking down on residents that purchase and register vehicles through Montana limited liability companies—a loophole that permits them to skirt Indiana’s sales tax and vehicle registration requirements. The bill provides unspecified “investigative powers” to the revenue department.
The fiscal analysis said the new authorities would “improve tax compliance, resulting in a potentially significant increase in sales tax revenue.” It did not provide a dollar amount of anticipated revenue.
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