Montana has several exemptions and deductions for retirement income for Tax Years ending before December 31, 2023. Beginning in Tax Year 2024, these benefits will expire, with the exception of the Tier I and II Railroad Retirement Benefits. Tier I and II Railroad Retirement Benefits will continue to be exempt from tax in Montana.
For more information about the expiration of these benefits as well as the other changes to Montana's tax system beginning in Tax Year 2024, see this page.
If your Federal Adjusted Gross Income is $42,140 or less in 2023, you may qualify for an exemption of all or part of the first $5,060 of your reported taxable retirement income. Retirement income that qualifies for the exemption includes pension, annuity, and IRA income reported on a federal Form 1099-R with distribution code 7. Distributions reported on a federal Form 1099-R with distribution code 2 qualify if the plan participant met the years of service for retirement eligibility. Complete the Partial Pension, Annuity, and IRA Income Exemption worksheet (Form 2, Page 6) to see if you qualify for this exemption.
Please Note:
Death benefits, premature distributions of retirement income, and Tier II Railroad Retirement Benefits do not qualify for the exemption.
Tax Year 2023 is the last year this benefit will be available.
Tier I and Tier II Railroad Retirement benefits paid by the Railroad Retirement Board are 100% exempt from tax in Montana.
You can qualify for a partial retirement disability income exemption of up to $5,200 if you meet all of these conditions:
You are permanently and totally disabled if you are unable to engage in any substantial gainful activity, if you have been medically determined to be physically or mentally impaired, and if your condition is expected to last at least 12 months.
Your disability income is generally reported with distribution code 3 on your federal Form 1099-R. It can also be reported on your Form W-2.
The exemption is phased out when your Montana Adjusted Gross Income is above $15,000.
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 in the Montana Individual Income Tax Return Instructions to determine your eligibility for the exemption.
Tax Year 2023 is the last year this benefit will be available.
Your Montana taxable amount of Social Security benefits may be different than your federal taxable amount because of Montana adjustments. You can use the Taxable Social Security Benefits worksheet (Form 2, Page 6) to determine the taxable amount of your Social Security benefits in Montana.
Tax Year 2023 is the last year that taxpayers will refigure the taxable amount of Social Security Benefits in Montana. Beginning with Tax Years 2024 and forward, taxable Social Security Benefits will be taxable to the extent they are included in federal taxable income.
Montana provides a partial interest exemption to taxpayers 65 or older. Interest income, sometimes called dividends, is the income you receive from interest on deposits or share accounts (such as a savings account).
To be eligible for the interest income exemption, you must be 65 or older at the end of the calendar year. Interest income exemption amounts are dependent on your filing status:
Please note:
Your interest income exemption cannot exceed your Montana Adjusted Gross Income.
Tax Year 2023 is the last year this benefit will be available.
You may deduct 100% of the supplemental parts of Medicare insurance (Medicare Part B and D) as medical insurance premiums on line 2 of the Itemized Deductions Schedule (Form 2, page 7).
Tax Year 2023 is the last year that taxpayers may take this deduction on the Montana tax return. Beginning with Tax Years 2024 and forward, these benefits are deductible to the extent they are included in federal itemized deductions.