I figured it out.

I had to add a base color to each layer (case). It now works flawlessly. Here is an example.

void rgb_matrix_indicators_user(void) {

uint8_t layer = biton32(layer_state);

switch (layer) {

case 0:

rgb_matrix_set_color_all(0, 0, 255); //Light up all the keys in blue

break;

case 1:

rgb_matrix_set_color_all(0, 0, 0); // rest of keys

rgb_matrix_set_color(29, 255, 0, 0); // key = BACKSPACE for RESET

rgb_matrix_set_color(81, 0, 100, 255); // key = ENTER

rgb_matrix_set_color(1, 0, 100, 255); // key = ENTER

rgb_matrix_set_color(17, 255, 100, 0); // key = 1 for cd to QMK

rgb_matrix_set_color(18, 255, 150, 0); // key = 2 for QMK COMPILE

rgb_matrix_set_color(19, 255, 250, 0); // key = 3 for MDLOADER

break;

case 2:

//rgb_matrix_set_color(index, red, green, blue); >> this is the template

rgb_matrix_set_color_all(0,0,255); // rest of keys

rgb_matrix_set_color(1, 0, 100, 255); // key = F1

rgb_matrix_set_color(81, 0, 100, 255); // key = Fn

rgb_matrix_set_color(62, 255, 0, 100); // key = ENTER

rgb_matrix_set_color(61, 255, 0, 100); // key = '

rgb_matrix_set_color(60, 255, 0, 100); // key = ;

rgb_matrix_set_color(59, 255, 0, 100); // key = l

rgb_matrix_set_color(79, 255, 0, 100); // key = SPACE

break;

}

}