Does Montana Tax Social Security and Retirement Income?

Montana taxes Social Security to the extent it is taxed federally

Since tax year 2024 the Montana return has started from federal taxable income, not federal adjusted gross income. The Department of Revenue’s summary of that change says taxable Social Security income is included in Montana taxable income to the extent it is included in federal taxable income. Montana no longer runs its own Social Security worksheet: the figure on federal Form 1040, line 6b, is already inside the starting number. (Montana Department of Revenue: Montana Tax Simplification Resource Hub)

Schedule I of Form 2 lists the subtractions allowed from federal taxable income, and Social Security is not among them. Railroad retirement benefits are: Tier I benefits included on Form 1040, line 6b, and Tier II benefits on line 5b are subtracted on Schedule I, lines 22 and 23. In our three example households the federally taxable benefit is $25,500, $46,750 and $59,500, and all of it stays in Montana taxable income. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Private and government pensions are fully taxed; military retirement has a limited, conditional subtraction

Montana law provides no general subtraction for pension income. Under section 15-30-2120 the subtractions from federal taxable income cover railroad retirement benefits, a share of military retirement pay and a fixed amount for taxpayers 65 or older, and nothing for private-employer pensions, federal civilian annuities or Montana public employee pensions. Those are taxed at 4.7% and 5.65% like wages. (Montana Code Annotated 15-30-2120, Adjustments to federal taxable income to determine Montana taxable income)

The military subtraction is aimed at retirees who are still working. It equals the lesser of 50% of the retiree’s military retirement income and the retiree’s Montana-source wages, business income and farm income, and it is claimed on Schedule I, line 13, with Form WMRE. A beneficiary receiving Survivor Benefit Plan payments can subtract up to 50% of them. A retiree with no Montana earnings therefore subtracts nothing. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

Residency conditions apply as well. The subtraction is open to people who became Montana residents after June 30, 2023, and to people who were residents before they began receiving military retirement pay and stayed. It can be claimed for only five consecutive years; for those who were residents before July 1, 2023, the last year is tax year 2028. Senate Bill 93 of 2025 removed the December 31, 2033 expiry date from the provision itself. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

The Department’s military guidance puts the general rule plainly: after retirement from the armed forces, income including the military pension is treated like other income for tax purposes, apart from the working military retirement exemption. (Montana Department of Revenue: Filing Information for Military Personnel and Spouses)

IRA and 401(k) withdrawals and Roth conversions are taxed as ordinary income

Distributions from traditional IRAs, 401(k), 403(b) and similar plans reach the Montana return inside federal taxable income, and no subtraction removes them. They are ordinary income, taxed in 2026 at 4.7% up to $47,500 of taxable income for a single filer or $95,000 for a married couple filing jointly, and at 5.65% above those amounts. (Montana Code Annotated 15-30-2103, Rate of tax, net long-term capital gains)

A Roth conversion is taxed the same way, because the converted amount is part of federal taxable income in the year of conversion. For a couple already above $95,000 of Montana ordinary income, a $100,000 conversion in 2026 adds $5,650 of Montana tax. Qualified Roth distributions are not in federal taxable income and so are not taxed by Montana. (Montana Department of Revenue: House Bill 337, individual income tax brackets and rates for tax years 2026 and 2027)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Interest and dividends are ordinary income; long-term gains are taxed at 3% or 4.1%

Montana taxes net long-term capital gains on their own schedule. Ordinary income is counted first. Gains that fit under the first bracket threshold ($47,500 single, $95,000 joint in 2026) after ordinary income are taxed at 3%, and the rest at 4.1%. Once ordinary income alone exceeds the threshold, every dollar of long-term gain is taxed at 4.1%. The 2025 legislation left the two rates unchanged and moved the threshold in step with the ordinary brackets. (Montana Code Annotated 15-30-2103, Rate of tax, net long-term capital gains)

The lower rates apply only to net long-term capital gains, generally the lesser of federal Schedule D, lines 15 and 16. The Form 2 instructions define Montana ordinary income as all taxable income that is not a net long-term capital gain and state that it includes qualified dividends. Interest, ordinary dividends, qualified dividends and short-term gains are therefore taxed at 4.7% and 5.65%. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

Interest on U.S. government obligations, including Treasury bills and notes and savings bonds, and mutual fund dividends attributable to it, is subtracted on Schedule I, line 9. Interest on bonds of other states and their political subdivisions, exempt federally, is added back on Schedule I, line 1. The add-back does not reach Montana’s own state and local bonds. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

House Bill 337 of 2025 widened the 4.7% bracket and cut the top rate for 2026 and again for 2027. For 2026 the 4.7% rate applies to the first $47,500 of taxable income for single filers, $71,250 for heads of household and $95,000 for joint filers, with 5.65% above. The Department has said it will adjust withholding tables to match. (Montana Department of Revenue: House Bill 337, individual income tax brackets and rates for tax years 2026 and 2027)

Montana has no standard deduction of its own. Form 2 begins with federal adjusted gross income on line 1 and subtracts on line 2 the total of federal Form 1040, lines 12e and 13b, which is the federal standard or itemized deduction plus the Schedule 1-A deductions. The instructions state that the enhanced deduction for seniors is included in the calculation of Montana taxable income. The 2026 Form 2 had not been published when this page was reviewed, so line references follow the 2025 form. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

The federal standard deduction shown above is therefore the one that counts: $16,100 for a single filer and $32,200 for a married couple in 2026, plus $2,050 for an unmarried person 65 or older or $1,650 for each married person 65 or older. That gives $18,150 for a single filer of 68 and $35,500 for a couple who are both 65 or older. (IRS Revenue Procedure 2025-32, inflation adjustments for tax year 2026 (standard deduction and additional amounts))

The federal deduction for seniors, in effect for 2025 through 2028, is a further $6,000 per person 65 or older, reduced by 6% of modified adjusted gross income above $75,000, or $150,000 on a joint return. Our first two example households receive it in full ($6,000 and $12,000). The third, with federal AGI of $279,500, receives none. (IRS: Check your eligibility for the new enhanced deduction for seniors)

The bracket table cannot show the capital gains schedule, so the calculation on this page follows the worksheet on page 2 of Form 2: gains are separated from taxable income, taxed at 3% up to the room left under the bracket threshold and at 4.1% beyond it, and the remainder is taxed at the ordinary rates. Our households’ “long-term capital gains and qualified dividends” figure is treated entirely as net long-term capital gain. Any part that was in fact qualified dividends would be taxed at 4.7% or 5.65% instead. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

Each taxpayer who has reached 65 subtracts a fixed amount from federal taxable income on Form 2, line 6. The statutory amount is $5,500, multiplied each year by an inflation factor that the Department must apply by November 1. The statute sets no income limit on it. (Montana Code Annotated 15-30-2120, Adjustments to federal taxable income to determine Montana taxable income)

For tax year 2025 the indexed subtraction is $5,660 per person, or $11,320 when both spouses on a joint return are 65 or older. The Department had not published the 2026 amount when this page was reviewed, so the examples here use $5,660. (Montana Department of Revenue: 2025 Montana Tax Tables and Deductions)

The Department’s 2026 Publication 1, its guide to withholding and estimated payments dated September 2025, lists the subtraction for taxpayers 65 and older at $5,660 in its instructions for estimating 2026 Montana taxable income, the same figure as on the 2025 return. The same guide confirms that the federal standard deduction is used to arrive at Montana taxable income and prints the 2026 and 2027 rate tables. (Montana Department of Revenue, 2026 Montana Publication 1: A Guide to Montana Tax Withholding and Estimated Payments (V1, September 2025))

Stacked together, a single filer of 68 with income under $75,000 has $18,150 of federal standard deduction, $6,000 of federal senior deduction and $5,660 of Montana subtraction: $29,810 before any Montana tax. A couple both 65 or older with income under $150,000 has $35,500, $12,000 and $11,320, or $58,820. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Montana's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which is the same wherever they live. The tax bracket calculator and the guide to taxes in retirement cover that side.

As a comparative figure, the Tax Foundation’s 2026 report, using 2024 Census data, puts Montana property taxes at 0.61% of owner-occupied home value, 35th among the states, or about $3,050 a year on a $500,000 home. Its county figures show 0.55% in Gallatin County, 0.74% in Yellowstone County and 0.78% in Missoula County. These figures predate the 2026 rate structure described below. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

Two 2025 acts, House Bill 231 and Senate Bill 542, rebuilt residential property tax in two stages. Montana tax is the product of taxable value and local mill levies, and taxable value is market value multiplied by a statutory rate that had been 1.35% for most homes. For tax year 2025 that single rate became three tiers, 0.76%, 1.1% and 2.2%, and homeowners could claim a rebate. From tax year 2026 the rate depends on how the home is used. (Montana Legislative Fiscal Division, Commercial and Residential Property Taxes (June 2025), on HB 231 and SB 542)

For 2026 an enrolled primary residence or long-term rental is assessed at 0.76% on the first $378,000 of market value, 0.90% from $378,001 to $756,000, 1.10% up to $1,511,999 and 1.90% above that. Second homes, short-term rentals and vacant residential lots are assessed at a flat 1.90%. On a $500,000 home the taxable value is about $3,971 as a homestead and $9,500 as a second home, roughly 2.4 times as much before mills are applied. (Montana Department of Revenue: 2026 Property Tax Changes)

The reduced rate is not automatic. The owner must live in the home for at least seven months of the year and enroll it with the Department; homeowners who received the 2025 rebate and still live in the same home were enrolled without applying. Homes owned by an individual, a couple or a revocable grantor trust qualify. Homes held in an LLC, corporation, partnership or irrevocable trust do not. Enrollment for tax year 2027 runs from May 4, 2026 to March 1, 2027. (Montana Department of Revenue: Homesteads and Long-Term Rentals, reduced tax rate enrollment)

An owner who qualified for the homestead rate in 2026 but did not receive it can claim a refund of the difference from January 1, 2027, through the Department’s online portal, once the 2026 taxes and any earlier balances are paid in full. An approved refund request also enrolls the home for 2027. (Montana Department of Revenue: 2026 Property Tax Refund)

The 2025 rebate was a one-time payment of up to $400 on property taxes for a principal residence owned and lived in for at least seven months of 2024, claimed between August 15 and October 1, 2025. The Department describes it as a one-time rebate. (Montana Department of Revenue: 2025 Property Tax Changes)

The Property Tax Assistance Program lowers the assessment rate further for low-income owners of any age. By statute the reduction applies to the first $350,000 of the home’s market value, a figure adjusted at each reappraisal cycle, and the income ranges are indexed every year. (Montana Code Annotated 15-6-305, Property tax assistance program)

Montana does not have a general sales tax, so groceries, prescriptions, clothing, vehicles and online purchases carry no state sales tax. Montana residents cannot claim another state’s sales tax on the Montana return. (Montana Department of Revenue: Sales Tax Guidance for Montana Business and Residents)

Two narrower taxes apply. Lodging used for less than 30 days carries a combined 8% state tax, made up of a 4% lodging sales tax and a 4% lodging facility use tax, and that includes vacation rentals booked through online platforms. (Montana Department of Revenue: Lodging Facility Sales and Use Tax)

Designated resort communities and resort areas may levy a voter-approved local resort tax of up to 3% on lodging, restaurant and bar sales, recreational facilities and luxuries sold in the resort area. The Department of Revenue does not administer it; the Department of Commerce designates the areas that qualify. (Montana Department of Revenue: Local Resort Tax)

Montana collects neither tax. The inheritance tax was repealed in November 2000 and does not apply to any death after January 1, 2001, and there is no Montana estate tax for deaths after 2004. The Department no longer requires a certificate or consent to close probate or to transfer securities. (Montana Department of Revenue: Estate and Inheritance Tax)

An estate can still have a Montana income tax obligation. The fiduciary files Form FID-3 when a federal Form 1041 is filed and the decedent owned Montana property at death or the estate has Montana-source income. Only the federal estate tax can apply to the transfer itself. (Montana Department of Revenue: Estate and Inheritance Tax)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

The second step of House Bill 337 takes effect for tax year 2027: the 4.7% bracket runs to $65,000 for single filers, $97,500 for heads of household and $130,000 for joint filers, and the top rate falls from 5.65% to 5.4%. The capital gains rates stay at 3.0% and 4.1%, with the 3% threshold rising to the same $65,000 and $130,000. (Montana Department of Revenue: House Bill 337, individual income tax brackets and rates for tax years 2026 and 2027)

From 2027 the statute also directs the Department to adjust the bracket amounts each year by an inflation factor, rounded to the nearest $100, by November 1 for the following tax year. (Montana Code Annotated 15-30-2103, Rate of tax, net long-term capital gains)

Tax year 2026 is the first year in which a Montana home’s assessment rate depends on enrollment as a homestead or long-term rental. First-half 2026 property taxes are due November 30, 2026 and second-half taxes May 31, 2027, and refund requests for owners who missed the reduced rate open on January 1, 2027. (Montana Department of Revenue: 2026 Property Tax Refund)

The federal senior deduction that flows into Montana taxable income applies only for 2025 through 2028. Unless Congress extends it, Montana taxable income for a filer 65 or older rises by up to $6,000 per person from 2029. (IRS: Check your eligibility for the new enhanced deduction for seniors)

A person is a Montana resident if domiciled in the state or maintaining a permanent place of abode there, and Montana taxes all of a resident’s income wherever it is earned. The Department weighs factors such as a Montana driver’s license, voter registration, resident hunting or fishing licenses, vehicle registration, where mail, professional services and health care are received, and where the person owns or occupies a home. No single factor decides, and not all need be met. (Montana Department of Revenue: Montana Residency)

Seasonal absence does not change status. The Department’s guidance names retirees who are Montana residents but live in another state for part of each year as people who are not part-year residents: they remain full-year residents. Where a person keeps homes of similar permanence in two states, the Department looks at whether residency in one has been abandoned through affirmative actions. (Montana Department of Revenue: Montana Residency)

A part-year resident is someone who actually moved in or out during the year. Montana taxes the income received while living in the state plus Montana-source income received while living elsewhere. The tax is first figured on Form 2 as if the person were a full-year resident and then multiplied on Schedule II by the ratio of Montana-source income to total income. (Montana Department of Revenue, 2025 Montana Individual Income Tax Return (Form 2) Instructions, including 2026 and 2027 tax tables)

Federal law (4 U.S.C. 114) bars a state from taxing the retirement income of a person who is not its resident or domiciliary. A pension or 401(k) earned during a Montana career is not taxed by Montana once the retiree is a resident of another state, and a pension earned elsewhere is taxed by Montana, at 4.7% and 5.65%, once the retiree lives here. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)