Montana does have a state income tax

Montana charges a state income tax on wages, self-employment income, and other earnings. The tax rate depends on how much you earn — it ranges from 1% on the lowest incomes to 6.9% on the highest. This is separate from the federal income tax you owe to the IRS.

Unlike some states that have no income tax at all, Montana funds its schools, roads, and services partly through this tax. If you work in Montana or live there, you will owe state income tax on your earnings unless you fall into a specific exemption category.

Key Takeaways

  • Montana's state income tax ranges from 1% to 6.9% depending on your income bracket, and you owe it on top of federal income tax.
  • The tax applies to wages, self-employment income, interest, dividends, and most other forms of income earned in or by Montana residents.
  • Montana offers a property tax reduction for homeowners and renters, which can offset some of your state tax burden.
  • If you work in Montana but live in another state, you may owe Montana income tax on wages earned here, depending on reciprocal agreements.
  • You file Montana income tax using Form 2, the state's individual income tax return, which you submit to the Montana Department of Revenue.

Montana's income tax brackets and rates

Montana uses a progressive tax system, meaning the rate increases as your income rises. For the 2024 tax year, the brackets start at 1% for the lowest earners and climb to 6.9% for those in the highest bracket. The exact dollar amounts where each bracket begins change slightly each year based on inflation adjustments.

Your filing status — single, married filing jointly, married filing separately, or head of household — determines which bracket applies to your income. A married couple filing jointly reaches higher income levels before hitting the top rate than a single filer would. You can find the current year's brackets on the Montana Department of Revenue website or in the instructions that come with Form 2.

What income is taxed in Montana

Montana taxes most forms of income: wages from a job, self-employment income, interest earned on savings accounts or bonds, dividends from stocks, rental income, and income from retirement accounts if you withdraw before age 59½. If you are a Montana resident, you owe tax on income from any source, whether it was earned in Montana or elsewhere.

Some income is exempt. Social Security benefits are not taxed by Montana (though they may be taxed federally). Certain military pensions and some retirement income may may have access to for partial exemptions depending on your age and the source of the income. The Montana Department of Revenue publishes a guide to what counts as taxable income each year.

The property tax reduction credit

Montana offers a property tax reduction that can lower your state income tax bill if you own a home or rent. This credit is based on your household income and the property taxes or rent you paid during the year. Renters can claim the credit even though they do not pay property tax directly — the credit recognizes that rent includes an implicit property tax component.

To claim the property tax reduction, you file it on your Montana income tax return. The amount varies widely depending on your income level and how much property tax or rent you paid. Homeowners and renters with lower incomes generally receive a larger credit. This is one of the main ways Montana reduces the overall tax burden on residents.

If you work in Montana but live elsewhere

If you live in another state but work in Montana, you may owe Montana income tax on the wages you earn here. Montana has reciprocal tax agreements with some neighboring states — Idaho, North Dakota, and Oregon — that can affect whether you owe Montana tax. Under these agreements, residents of those states who work in Montana may not owe Montana income tax if their home state taxes the same income.

The rules depend on which state you live in and the specific terms of any agreement. If you live in a state without a reciprocal agreement with Montana, you will likely owe Montana tax on your Montana wages. You should contact the Montana Department of Revenue or your home state's tax agency to confirm your situation, since the rules can be complex.

How to file Montana income tax

You file Montana state income tax using Form 2, the Montana Individual Income Tax Return. You submit it to the Montana Department of Revenue by April 15 of the following year — the same important date as federal taxes. If you need more time, you can request an extension, which gives you until October 15.

You can file by mail, by phone using an automated system, or electronically through tax software or a tax professional. The Montana Department of Revenue website lists approved e-file providers. If you owe money, you can pay by check, electronic transfer, or credit card (though a fee applies to credit card payments). If you are owed a refund, direct deposit is the fastest way to receive it.

Deductions and credits available to Montana residents

Montana allows you to claim either the standard deduction or itemize deductions, just like on your federal return. The standard deduction amount changes each year. If you itemize, you can deduct mortgage interest, charitable donations, and other expenses, but Montana does not allow a deduction for state income taxes paid.

Beyond the property tax reduction, Montana offers other credits that can lower your tax bill: a dependent exemption credit, a tax credit for low-income households, and credits for certain types of income like capital gains on the sale of a home. Some credits are refundable, meaning you can receive money back even if you owe no tax. Review the Form 2 instructions or the Montana Department of Revenue website to see which credits explore to your situation.

Frequently Asked Questions

Does Montana have sales tax?

Montana does not have a statewide sales tax. Some cities and counties charge local sales taxes, but these vary by location. You will not see a sales tax added at checkout in most of Montana, though you should check your specific city or county rules.

Can I deduct federal income tax paid from my Montana state taxes?

No. Montana does not allow you to deduct federal income taxes paid on your state return. You can deduct state income taxes on your federal return, but not the reverse.

What happens if I do not file Montana income tax?

If you owe Montana income tax and do not file, the state can assess penalties and interest on the unpaid amount. The Montana Department of Revenue can also place a lien on your property or garnish your wages. If you cannot pay in full, contact the Department of Revenue about payment plans.

Is Montana income tax withheld from my paycheck?

Yes, if you work in Montana, your employer should withhold Montana income tax from your paycheck, just as they withhold federal tax. You can adjust the amount withheld by filing a new W-4 form with your employer if you want more or less withheld each pay period.

Do I have to file if I live in Montana but had very little income?

You must file if your income exceeds the filing threshold for your age and filing status. The threshold varies by year and is lower for seniors. Even if you do not have to file, you may want to file anyway to claim the property tax reduction or other credits that result in a refund.