LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6829 NOTE PREPARED: Dec 30, 2023
BILL NUMBER: HB 1301 BILL AMENDED:
SUBJECT: Income Tax Deduction for Recent Graduates.
FIRST AUTHOR: Rep. O’Brien BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: The bill provides an adjusted gross income tax deduction for Indiana residents
who obtain:
(1) a bachelor's or an associate degree from a postsecondary educational institution; or
(2) a certificate from a high value workforce certificate program, as determined by the Commission
for Higher Education (CHE);
in taxable years immediately following the taxable year in which the individual obtained the degree or
certificate.
The bill provides that a qualified individual is entitled to the tax deduction in each of the first two or four
taxable years, depending on the type of degree or certificate obtained, that begin immediately following the
taxable year in which the qualified individual completed the applicable educational program. The bill
provides that the tax deduction for a particular qualified year is equal to the lesser of: (1) the amount of the
qualified individual's Indiana adjusted gross income; or (2) $50,000.
It requires the CHE to, in part, determine and certify an individual's eligibility for the tax deduction.
Effective Date: January 1, 2025.
Explanation of State Expenditures: CHE: The CHE is responsible for issuing a certificate of eligibility
for the income tax deduction established by the bill to each applicant that the CHE has determined meets the
deduction’s required criteria. Applicants must include their transcript in their application to the CHE, along
with any other information requested by the CHE to determine eligibility. The CHE will also determine
whether a certificate program is a high value certificate program for purposes of being eligible for the
HB 1301 1 deduction based on certain factors specified in the bill. The CHE should be able to provide the certificates
within current resources.
Department of State Revenue (DOR): The DOR would incur some administrative expenses relating to the
revision of tax forms, instructions, and computer programs to reflect the income tax deduction established
by the bill. The DOR’s current level of resources should be sufficient to implement these changes.
Explanation of State Revenues: The bill establishes an Adjusted Gross Income (AGI) Tax deduction for
Indiana residents who obtain a bachelor degree, associate degree, or a certificate from a high value workforce
certificate program. The individual AGI tax deduction is equal to the amount of the individual’s Indiana AGI,
up to $50,000, for each of the first two or four taxable years, depending on the type of degree or certificate
obtained, that begin immediately following the taxable year in which the qualified individual completed the
applicable educational program. The bill will impact state revenue beginning in FY 2027. The bill will reduce
state General Fund revenues by an estimated $78.5 M in FY 2027. The revenue impact of the proposal will
approximately double in FY 2028 and further increase over time as the deduction is phased in over four
years, and as graduates’ salaries increase in the years after graduation.
Additional Information - In total, the estimate assumes that approximately 64,400 graduates would be able
to claim the deduction in the first year and would be able to deduct an average of around $41,000 per eligible
taxpayer. The ultimate revenue impact of the bill may be higher or lower than the estimate and will be
influenced by several factors including trends in college enrollment, the number of graduates who work in-
state following graduation, designations made regarding the definition of high-value certificate programs,
and varying wages earned by eligible taxpayers. Under current law, the state income tax rate for tax year
2026 is 2.95% and will decrease to 2.90% in tax year 2027 and thereafter.
The estimate is based upon data from the U.S. Census Bureau Post-Secondary Employment Outcomes
Explorer, the National Center for Education Statistics, and the Bureau of Labor Statistics. Approximately
80,200 people graduate annually from Indiana colleges and universities with a bachelor’s and associate’s
degree or with a certificate awarded in a field that meets the high-value certificate qualifications for
NextLevel Jobs. From data reported in the U.S. Census Bureau’s Post-Secondary Employment Outcomes
Explorer, 59% of Indiana bachelor-degree holders are working full-time in the state in the year after
graduation, while 81% of associate’s degree holders and certificate holders are working full-time in Indiana.
The estimate assumes that an additional 20% of the number of full-time workers are working part time based
on Bureau of Labor Statistics data on the number of full- and part-time workers. The estimate uses first year
graduate salary data for Indiana graduates from the U.S. Census Bureau’s Post-Secondary Employment
Outcomes Explorer adjusted to 2026 dollars by the Employment Cost Index from the Bureau of Labor
Statistics.
Explanation of Local Expenditures:
Explanation of Local Revenues: Because the new AGI tax deduction will decrease taxable income, counties
imposing a Local Income Tax (LIT) would experience a decrease in LIT revenue. Based on the current
weighted average LIT rate of 1.67%, the revenue loss is estimated to be about $44 M in FY 2027. The
revenue impact of the proposal will more than double in FY 2028 and further increase over time as the
deduction is phased in over four years, and as graduates’ salaries increase in the years after graduation.
State Agencies Affected: Commission for Higher Education, Department of State Revenue.
HB 1301 2 Local Agencies Affected: Local units that receive LIT revenue.
Information Sources: Bureau of Labor Statistics. (2022-2023). Employed and Unemployed Full- and Part-
Time Workers by Sex and Age, Seasonally Adjusted. https://www.bls.gov/web/empsit/cpseea06.htm;
U.S. Census Bureau, Post-Secondary Employment Outcomes Explorer.
https://lehd.ces.census.gov/applications/pseo/; Integrated Postsecondary Education Data System (IPEDS),
National Center for Education Statistics.
Fiscal Analyst: Camille Tesch, 317-232-5293.
HB 1301 3