State Income Tax Refunds Income tax refunds received from Montana or another state are not taxable. If you are required to include your state income tax refund in your Federal Adjusted Gross Income on Form 2, Schedule 1, line 10, you can exclude that amount.
Interest and Mutual Funds Dividends from Federal Bonds, Notes, and Obligations If you received interest on United States government obligations and mutual fund dividends attributable to that interest, you can subtract these amounts from your Federal Adjusted Gross Income if they are included in your Federal Adjusted Gross Income on Form 2. In addition, if you received interest on obligations from U.S. territory or government agency obligations that are specifically exempt by federal law, or any mutual fund dividends attributable to this interest, you can subtract these amounts from your Federal Adjusted Gross Income if they are included in your Federal Adjusted Gross Income on Form 2.
Interest on obligations that are only guaranteed by the United States government are not tax exempt. If you received interest or mutual fund dividends attributable to Government National Mortgage Association (Ginnie Mae) bonds, Federal National Mortgage Association (Fannie Mae) bonds, or Federal Home Loan Mortgage Corporation (FHLMAC) securities, you cannot subtract this interest or mutual fund dividends.
United States obligations that are exempt include:
● Series E, EE, F, G and H savings bonds
● U.S. treasury bills
● U.S. government notes
● U.S. government certificates
Partial Interest Exemption for Taxpayers 65 and Older If you are single and age 65 or older at the end of 2018, you can exempt up to $800 of the interest income that you reported in your Montana Adjusted Gross Income.
If you are married and are filing a joint return with your spouse and at least one of you is age 65 or older at the end of 2018, you can exempt up to $1,600 of the interest income that you reported in your Montana Adjusted Gross Income.
If you are married and filing your return separately and are age 65 or older at the end of 2018, you can exempt up to $800 of the interest income that you reported in your Montana Adjusted Gross Income. Note, however, that you are not allowed to exclude interest income earned by and reported by your spouse.
Subtraction for Larger Federal Estate and Trust Taxable Distribution The Montana taxable distribution that you received from an estate or trust may be less than your federal taxable distribution from the same estate or trust. If so, the difference is a subtraction from Federal Adjusted Gross Income, and you report it on this line.
Exemption for Certain Income of Your Child Taxed to the Parents If your Federal Adjusted Gross Income included unearned income of a dependent child as determined on federal Form 8814, you may be able to exclude the unearned income from your Montana Adjusted Gross Income. You can exclude the unearned income from your Montana Adjusted Gross Income if your child’s gross income does not exceed $4,510 or they file their own Montana tax return.
Recoveries of Amounts Deducted in Earlier Years That Did Not Reduce Montana Income If you are required to include in your Federal Adjusted Gross Income any recovery of amounts that were refunded to you after you claimed the deduction of the expense on a prior federal income tax return, and if this previous deduction did not reduce your Montana income tax liability in the year of that deduction, you can subtract the amount of this recovery from your Montana Adjusted Gross Income. A distribution received from a pension trust or similar tax deferral scheme allowed under the Internal Revenue Code does not constitute a recovery for federal tax purposes but a mere inclusion in gross income.
Unemployment Compensation If you received unemployment benefits from Montana or from another state, these benefits are exempt from Montana tax.
Tribal Income When Exempt If you are an enrolled member of a tribe who lives on the reservation governed by your tribe, you can subtract income that can be sourced to the reservation governed by your tribe:
● wages earned within the exterior boundaries of your reservation;
● all interest, dividends, pensions, annuities, and any income received from the use of intangible properties;
● income, including farming, from real properties located within the exterior boundaries of your reservation;
● and business income from activities carried on within the exterior boundaries of your reservation.
If you did not reside on the reservation governed by your tribe for the entire year, you can subtract only those wages or other income that you earned while you lived and worked on your own reservation.
Certain Taxed Tips and Gratuities You can subtract from your Federal Adjusted Gross Income any tips and gratuities that you have received from customers while you worked in the food, beverage or lodging industry that you reported as part of your Federal Adjusted Gross Income. All other tips and gratuities that you received for providing services in other types of businesses—such as hair stylists, paper carriers and river guides—cannot be subtracted.
Workers’ Compensation Benefits Benefits received under the Workers’ Compensation laws are not taxed by Montana. If you reported taxable Workers’ Compensation benefits in your Federal Adjusted Gross Income, enter the amount of these benefits on this line.
Certain Health Insurance Premiums Taxed to Employee If you are a shareholder in an S Corporation, subtract the cost of your health insurance premiums to the extent they are included in your Federal Adjusted Gross Income.
Student Loan Repayments Taxed to a Health Care Professional If you are a health care professional licensed in Montana, you can exclude from your Federal Adjusted Gross Income up to $5,000 of any health-related student educational loan repayments that are paid on your behalf when this repayment is included in your Federal Adjusted Gross Income.
To qualify for this exclusion, you must be a health care professional who:
● is licensed in Montana;
● participates in a federal, state or qualified private loan repayment program (these repayment programs are generally through the U.S. Department of Health and Human Services and its Nursing Education Loan Repayment Program, the Montana Rural Physician Incentive Program, or a qualified private program with a licensed health care facility in Montana); and
● serves a significant portion of a designated geographic area, a special population, or a facility population in a federally designated Health Professional Shortage Area (HPSA), a Medically Underserved Area (MUA), or a Medically Underserved Population (MUP). You can determine if you are serving in an area listed above by contacting your employer or the Montana Department of Public Health and Human Services Primary Care Office at (406) 444-3934 or go to dphhs.mt.gov.
Military Salary of Active Duty Service Person If you are receiving military compensation as a member of the regular U.S. Armed Forces on active duty, or as a member of the National Guard under Title 10 USC orders, and this compensation is included in your Federal Adjusted Gross Income, you can use this line to subtract your basic, special and incentive pay from your Federal Adjusted Gross Income.
If you receive wages under the Combat Zone Exclusion that are not included in your Form W-2, Box 1, it will not be included in your Federal Adjusted Gross Income, so do not subtract that pay again. Do not include this amount on this line. However, if you are a commissioned officer who could not exclude all your wages received under the Combat Zone Exclusion because it exceeded the highest rate of enlisted pay for each part of the month you served in a combat zone or because you were hospitalized as a result of your service there, you may include the additional combat pay that was included in your Federal Adjusted Gross Income on this line.
If you are a Reserve member, include on this line the salaries you received when on active duty in the regular armed forces. Compensation received when completing your annual training and inactive duty trainings is not deductible and must not be included on this line.
If you are a member of the National Guard, you can add to this line your compensation received under Title 10 orders, or as part of a homeland defense activity as defined in 32 USC 901, or as part of a contingency operation as defined in 10 USC 101. Compensation received for completing your annual training, inactive duty trainings, or when you engaged in “active Guard and Reserve duty” as defined in 10 USC 101, is not deductible and must not be included on this line.
Do not add any retirement, retainer, equivalent pay or allowances on this line.
If you claim this exemption, include verification of your military status (such as your military orders) with your income tax return. Contact the department or visit revenue.mt.gov for more information.
Life Insurance Premiums Reimbursement or Death Benefits for National Guard and Reservist If you are a Montana National Guard member or Reservist who is serving on active duty in a contingency operation and you were reimbursed by the U.S. Department of Defense for the life insurance premiums that you paid for benefits under the service members’ group life insurance program, you do not have to add the Department of Defense reimbursement when you figure your Montana tax. To the extent this federal reimbursement is taxable to you for federal and Montana income tax purposes, it has already been included in your Federal Adjusted Gross Income.
An adjustment to your Federal Adjusted Gross Income is needed if you also received a premium reimbursement from the Montana Department of Military Affairs for additional life insurance premiums you paid (up to $17.50 a month). The Montana reimbursement is taxable income for federal income tax purposes but it is exempt for Montana income tax purposes, so you can deduct these reimbursements from your Federal Adjusted Gross Income in arriving at your Montana Adjusted Gross Income.
If you received a death benefit payment from the Montana Department of Military Affairs because you are the survivor of a member of the National Guard who died while on state active duty orders, and this death benefit is included in your Federal Adjusted Gross Income, that amount is exempt from state taxes in Montana and you can subtract it here.