Tool | August 2013
State-by-State Guide to Taxes on Retirees
State Sales Tax
There is no general state sales tax, but you will pay 7% in taxes on accommodations and campgrounds and pay a 4% tax on rental vehicles. Montana allows tourism-dependent local communities to impose a local option sales tax. State law limits the rate to no more than 3%, but the rate and taxable items are both set by local ordinance. Eight communities have adopted local sales taxes.
Income Tax Range
Low: 1% (on up to $2,700 of taxable income)
High: 6.9% (on taxable income over $16,400)
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
Tier I and Tier II Railroad Retirement benefits are 100% exempt from Montana income tax. The state allows a partial pension exemption adjusted for inflation every year. For 2012, the maximum exemption was $3,830 if federal adjusted income is $31,920 or less. 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. Residents 65 and older can exclude up to $1,600 of interest income from state taxes.
Property taxes on residences average 1.5% of market value. Residential property owners qualify for a homestead exemption of 34% of market value, so the tax bill is based on 66% of a property's market value. The state establishes the assessment rate to determine the taxable value, while local taxing units establish the tax rates to determine the property tax amount. Median property tax on the state's median home value of $176,300 is $1,465, according to the Tax Foundation.
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.
There is no inheritance tax or estate tax.
- 6 Tax Factors to Consider When Picking a Retirement Destination
- States Differ on Retiree Tax Burden
- SLIDE SHOW: 10 Most Tax-Friendly States for Retirees
- SLIDE SHOW: 10 Least Tax-Friendly States for Retirees
- VIDEO: Tax-Friendly States for Retirement
- SLIDE SHOW: 10 Things You Must Know About Social Security
- SLIDE SHOW: 10 Things You Must Know About Traditional IRAs
- SLIDE SHOW: 5 Costly Retirement Surprises
- SPECIAL REPORT: Maximize Your Social Security Benefits
- ORDER: Kiplinger's Social Security Solutions
- TOOL: Kiplinger's State-by-State Guide to Taxes