With Porter County’s decision to withdraw from the Northwest Indiana Regional Development Authority, concerns have been raised over the fate of the county’s homestead credit.

Not all counties have their own homestead credit, which cuts taxes just on homes. Porter County’s credit first appeared on property tax bills payable in 2006, following the Porter County Council’s decision the year before to double the county income tax to join the RDA. The first $3.5 million of the 0.25 percent county tax have gone to the RDA and the remainder to the homestead credit.

Just how important is this credit in lowering property taxes for homeowners?

The rate for the credit has been fairly constant in the past three years. In its first year, the rate was 5.6 percent, then in 2007 it climbed to just over 6 percent, and then for the 2008 bills, fell back to 5.58 percent.

The county homestead credit has kicked in after one of the state’s credits is deducted from the gross tax. In simplest terms, the county credit saved homeowners 5.58 percent on their net 2008 tax (not 15.5 percent as reported elsewhere).

To find out how much this credit helped you, look at the line on your most recent bill that says “local tax relief.” The amount shown should equal a 5.5832 percent reduction of the gross tax after one of the state credits is applied.

Take a Chesterton home assessed at $200,000. In 2008, the gross tax was $3,991. The state’s two credits cut this by $1,941. The county homestead credit cut another $178, bringing the final tax to $1,873.

The comparable savings from the county’s credit for $200,000 homes elsewhere in 2008 were: Porter, $185; Burns Harbor, $153; Valparaiso, $200; and Portage, $211. Homes assessed at more than $200,000 get a larger cut from the county credit, while lower assessed homes got less.

A cut of any amount on property taxes might sound pretty good -- unless, of course, you pay substantially more toward the county income tax.

Let’s say a family of four lives in that $200,000 Chesterton home and has a household income of $100,000. Their income tax return will show that they paid about $456 toward the total county income tax -- or $228 for the part that funds the homestead credit/RDA. Thus, this Chesterton family paid $50 more toward the RDA/homestead tax than they saved from the credit.

Now let’s say this same family in the $200,000 house earned less -- $60,000. They ended up coming out ahead, saving an overall $50.

Let’s say that family earned more -- $200,000. They ended up paying nearly $300 more than they got back through the homestead credit.

In a nutshell, those who benefit the most from the county’s homestead credit are low to moderate wage earners who pay a moderate to hefty property tax bill.

Those who probably aren’t that fond of the county homestead credit are wage earners who don’t own a home and higher wage earners.

The rate for the homestead credit is determined by a state formula that includes both the amount raised by the income tax and the assessed value of homesteads. For the 2008 tax bills, $6.75 million funded the credit. In 2009, $8.3 million will fund the credit.

An increase in revenue for the credit doesn’t always mean that the credit rate will increase, due to the formula that’s used. Consider what happened in 2007 -- the credit rate was the highest it ever was, yet it was funded by $5.8 million, less than in 2008. Still, it’s safe to say that the more the income tax brings in, the more there is available to give back as a credit for homeowners. But that works both ways: If the economy tanks and unemployment climbs, the income tax revenue could drop. And that could lead to a drop in the credit.

Some are predicting exactly that.

The county income tax revenues are based on the state’s tax returns from the previous year, which reflect wages and withholdings from the preceding year. So once the 2008 and ‘09 recession is reflected in the numbers, we could see a drop in the county income tax revenues in 2010 and ‘11, which in turn would mean less for the homestead credit.

Looking ahead to the 2009 property tax bills, how important will the county credit be in cutting homeowner taxes?

We don’t yet have all the tax and credit rates to know for sure. But we do know that some very significant state-driven property tax changes are heading our way.

Gross taxes should drop, due to lower tax rates because of the state takeover of school general funds and other levies. Further, homeowners should see their net assessed value drop, due to a new supplemental homestead deduction.

At the same time, though, one of the state’s important credits will disappear, while another will drop significantly.

A look at some of the counties that already have their 2009 tax data shows a mixed bag.

The tax on a home assessed at $200,000 in Carmel is estimated to drop this year by $164. But in Martinsville, that same homeowner is projected to pay $78 more. In Medaryville, the estimated tax will climb $357. In Vevay, the hike will be even steeper, $570. (Carmel and Vevay are in counties that do not have a local tax relief measure, while the other two do).

Without all the tax and credit rates, it’s premature to know for sure if Porter County homeowner taxes are on their way up or down in ‘09. So it remains to be seen whether Porter County’s homestead credit will cut already-lowered tax bills, or whether the tax bills will end up higher regardless of the local credit.

One thing is clear, though: While it’s indisputable that the county credit helps cut homeowner tax bills, the state-driven property tax changes in store for us in 2009 will have the greatest impact in shaping the final bills.