Tax in Montana: a complete guide

Montana income tax 

As you probably know, all US citizens and residents must pay federal income tax. But many states impose their own state income tax on top of that; only nine US states choose not to charge residents any income taxes. 

Montana charges state income taxes up to a top rate of 6.75 percent. However, like federal income tax, Montana uses a marginal rate tax system (also known as effective tax). Montana has seven income tax brackets, which apply to all types of filers equally. 

These income brackets apply to everyone, whether you’re a single filer, filing jointly as part of a couple or a head of household. 

State taxes in Montana don’t apply to your gross income (the total amount before tax) but to your federal adjusted gross income (AGI). 

Many types of income aren’t taxed in Montana, so you can subtract them from your federal AGI to work out your taxable income. These include Social Security, unemployment compensation, state income tax refunds, interest from federal bonds or notes, some pension income, and active-duty military income. 

To lower the tax burden, further deductions are available for Montanans. Single filers are entitled to a minimum standard deduction of $2,140, and joint filers are entitled to $4,280. The maximum standard deduction is $4,830 for single filers and $9,660 for joint filers. 

Montana also offers a $2,580 personal exemption, which can be claimed for you, your spouse, and your dependents. 

There is a capital gains tax credit to help offset the income tax on capital gains. The capital gains tax credit equals two percent of all capital gains on your Montana income tax return, effectively taking the top capital gains tax rate from 6.9 percent down to 4.9 percent. 

However, even with deductions, when Montana’s income tax is compared to the zero percent income state in neighboring Wyoming, it can feel costly for residents. 

Montana sales tax 

Some relief for Montanans: there is no state sales tax on goods and services. 

The only exceptions are so-called “sin taxes” that apply to some products like alcohol and cigarettes. A pack of 20 cigarettes has a state excise tax of $1.70. 

Montana’s alcohol taxes are as follows: 

Montana property tax 

If you’re considering buying property in Big Sky Country, you’ll need to know how much you might be charged in state property taxes each year. 

Montana’s property taxes are relatively low, although they vary according to the size and value of the property; the average property tax rate is 0.74 percent. Compared with the rest of the country, that’s pretty good value. The US average property tax rate is 0.99 percent, and Montana’s state property taxes are the 31st lowest in the US. 

How are Montana’s property taxes calculated? 

The tax you must pay is based on your property’s market value, which state assessors appraise every two years. Until 2015, this reappraisal only took place every six years. 

If, upon reappraisal, the state assessors determine your home has gone up in value, the increase in taxes happens gradually over the next two years. 

Like many other states, the average property tax rate varies in relation to average property value across Montana’s 56 counties. Blaine is the county with the highest average property tax rate at 1.60 percent, whereas Madison’s average is just 0.52 percent.  

Montana motor tax 

More good news for Montana’s motorists: the zero percent sales tax extends to the sale of motor vehicles.  

The only thing you’ll need to factor in is the gasoline tax in Montana. Regular gas is taxed at $0.33 per gallon, and diesel is taxed at $0.2975 per gallon. 

Montana estate tax 

Since 2005, there has been no state estate tax in Montana.  

If you don’t live in Montana but receive an inheritance from someone who resided in Montana, you need to check the regulations where you live, as you could be liable to pay fees on your inheritance. 

Montana retirement tax 

Montana’s state taxes paint a mixed picture for seniors. 

On one hand, the state’s zero percent sales tax and relatively low rate of property taxes mean seniors can save valuable dollars on everyday expenses. On the other hand, Montana imposes state taxes on most retirement income.  

Retirement income – including savings in a 401(k), IRA or other savings account – is viewed as regular income and state taxes apply as they would for any other form of income, as laid out at the beginning of this guide. 

However, some seniors are entitled to discounts on their tax bill.  

As mentioned, Montana taxes apply to federal AGI, not gross income, for some seniors with a lower AGI, deductions and tax credits are available. 

Social Security is taxable retirement income in Montana unless your federal AGI falls below a certain threshold. All Social Security income is deductible if you’re a single filer with an AGI less than $25,000 or joint filers with an AGI less than $32,000. 

For single filers with an AGI between $25,000 and $34,000 or joint filers with an AGI between $32,000 and $44,000, 50 percent of Social Security is deductible. Anyone earning more than that can only deduct 15 percent of their Social Security. 

Montana offers other state tax benefits to elderly residents through the Elderly Homeowner Credit. This is a tax credit offered to property owners over 62. The Elderly Homeowner Credit can give you up to $1,000 off your property tax bill. 

For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.    

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