Retirees who moved out of state often contact the department asking if their social security benefits or other qualified plan distributions are taxable in Montana.
The general rule, which allows few exceptions, is that social security benefits, pensions and annuity payments, and distributions from qualified plans such as defined benefits, 401k plans, IRA plans and so on, are sourced to the state of residence of the beneficiary when the payments are received.
This means that if retired taxpayers move to a new state, their retirement income is sourced to their new state and are not taxable in Montana from the date taxpayers gain tax residency status in their new state. When this is the case, such income is not reportable as Montana source income on Form 2. If taxpayers requested a voluntary withholding of Montana tax, they must contact their payor to stop that withholding.
Some words of caution are necessary.
Gaining attributes of residency in another state such as license plates, or a driver’s license is not always enough to relinquish tax residency in Montana, especially if you maintain a home or a dwelling in the state.
Residency for tax purposes is dependent on all facts and circumstances. We advise taxpayers to either talk to a tax practitioner or call the department to make sure their residency status has changed.