Tool | October 2016

State-by-State Guide to Taxes on Retirees

Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state.

Montana

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The Bottom Line
Map of Montana

Least Tax-Friendly

One of Kiplinger's top ten least tax-friendly states for retirees, the Treasure State is one of five states that do not impose a general state sales tax. That's the good news. The bad news is that it taxes most forms of retirement income. The state allows a pension- and annuity-income exemption of up to $3,980 per person, subject to certain income limitations. Residents 65 and older can exclude up to $800 for single filers (up to $1,600 for married filers) of interest income from state taxes.

State Sales Tax

No sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.

Income Tax Range

Low: 1% (on up to $2,900 of taxable income)

High: 6.9% (on taxable income over $17,400). Montana permits filers to deduct some of their federal income tax.

Social Security

Social Security benefits are taxable. The taxable amount may be different from the federally taxable amount because Montana taxes some types of income that the federal government does not, and vice versa.

Exemptions for Other Retirement Income

The state allows a partial pension exemption adjusted for inflation every year. For 2015, the maximum exemption was $3,980 if federal adjusted income was $35,180 or less ($37,170 or less for joint returns). If both spouses are receiving retirement income, each spouse can take up to the maximum exemption if the couple falls under the income threshold. Early distributions from an IRA do not qualify for this exemption. Single residents 65 and older can exclude up to $800 of interest income from state taxes, while married joint filers can exclude up to $1,600. Tier II Railroad Retirement benefits are 100% exempt from Montana income tax.

IRAs

Qualifies for the pension exemption.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Qualifies for the pension exemption.

Private Pensions

Qualifies for the pension exemption.

Public Pensions

Qualifies for the pension exemption.

Property Taxes

There is a property tax assistance program -- if you are single and your total household income is greater than $21,032, you do not qualify. Households with more than one owner occupant and a total household income greater than $28,043 cannot qualify.

The median property tax on Montana's median home value of $196,800 is $1,653.

Tax breaks for seniors: Any homeowner or renter 62 or older can apply for a refundable income tax credit worth up to $1,000 if they have lived in Montana for nine months, occupied a residence for six months and have a gross household income of less than $45,000.

Inheritance and Estate Taxes

There is no inheritance tax or estate tax.