Montana taxes all pension, annuities, and retirement income if it is taxable on the federal return. However, you may be entitled to a partial exemption, deduction, or exclusion.
Retirement Exemptions, Deductions, and Exclusions
Partial Pension and Annuity Income Exemption
For retirement income other than Tier II Railroad benefits, you can complete Partial Pension and Annuity Income Exemption worksheet (Form 2, Page 5) to see if you qualify for an exemption.
Tier I and Tier II Railroad Retirement Benefits
Tier I and Tier II railroad retirement benefits are 100% tax-exempt in Montana.
If you have a disability pension, identified as distribution code 3 on your 1099-R, you can use the Montana Disability Income Exclusion worksheet included with the Montana Individual Income Tax Return Instructions.
Social Security Benefits
Montana taxes social security benefits differently than the IRS. You can use the Taxable Social Security Benefits worksheet (Form 2, Page 5) to determine the taxable amount of your social security benefits in Montana.
Montana taxes interest income. Interest income, commonly called dividends, is the income you receive from interest on deposits or share accounts (such as a savings account).
If you are 65 or older at the end of the calendar year, and:
- Filing as single, you can exempt up to $800 of interest income from your Montana adjusted gross income
- Married filing jointly, you can exempt up to $1600 of interest income from your Montana adjusted gross income, even if your spouse is under 65.
- Married filing separately, you can exempt up to $800 of interest income from your Montana adjusted gross income but you can’t exclude your spouse’s interest income.
If you receive social security and have Medicare premiums deducted from your benefits, these premiums may be included as an itemized deduction.
Medicare premium deductions are labeled as “Medicare premium payments made in 2017” on your federal Form SSA-1099.
The supplemental part of Medicare insurance (Medicare B) and premiums you pay form Medicare D are 100% deductible, if you choose an itemized deduction.