Did you know Montana is among the four states that do not charge sales tax locally and at state levels? Montana State income tax rates are between 1% and 6.75%. Most residents use the state’s standard deductions and credits to minimize their taxes. Factors like your age, disability, marital status, dependents, and property all affect the amount of taxes you pay.
In this article, let’s learn more about Montana State Income Tax, standard deductions, and credits in detail. You will also understand how much tax you must pay and how to reduce it significantly.
Does Montana have a State Income Tax?
Income taxes in Montana range between 1% and 6.75%. Even though the state does not charge a state or local sales tax, Montana resorts can charge a 4% tax.
The state provides many tax deductions and credits to lower your tax liability. These tax benefits include a standard deduction, an itemized deduction, an earned income tax credit, an elderly homeowner and renter credit, and many others.
Itemized Deductions
Standard and itemized deductions can be claimed depending on your tax situation. The same filing method must be chosen by both you and your spouse if you are married. It is also necessary for your spouse to itemize deductions.
Political Contributions
Montana allows itemized deductions of up to $100 for political donations. Joint filers can each claim $100 as a deduction. Montana will enable you to deduct your political contributions if you donate to:
- An individual running for office at the federal, state, or local level
- An organization or committee formed to promote a candidate for federal, state, or local office
- Political parties or committees at the national, state, or local level
How to Calculate Montana State Income Tax?
In Montana, a person earning $70,000 will have to pay $11,822 in taxes. Income tax rates in Montana are 11.67% on average and 22% marginal on your income. Those who receive an immediate increase in income will also pay the marginal tax rate.
An income tax calculator can help you accurately calculate your Montana State Income tax. This way, you can estimate how much you might be required to pay on your taxable income. Your income is tax-free if it is below the standard deduction based on age, filing status, and disability.
Example Calculation (Disclaimer: This is an approximation)
Your federal taxes are around $15,000 (this can vary). Your state taxes might range from $4,000 to $5,000. FICA taxes would be roughly $6,120. This would lead to a potential $80,000 after-tax income of between $53,880 to $59,880.
Do I have to pay Montana State Income Tax?
Whether you’re a full-time or part-time resident, you must file a Montana income tax return if you earn income using your Montana business or property.
Corporate and Franchise Income Tax
A standard corporate tax rate of 6.75% is imposed in Montana on business income. A lower tax rate can be achieved by electing Montana’s alternative gross sales tax rate method. This technique charges Montana business owners a flat 0.5% sales tax. A business must earn less than $100,000 in the state and meet other requirements to qualify for the lower tax rate.
Capital Gain Tax Rates
A capital gain is taxed based on taxable income. Montana allows residents to credit up to 2% of their net capital gains toward their income taxes.
Property Taxes and Exemptions
Local governments collect property taxes in Montana, but the state charges none. A state program called the Property Tax Assistance Program (PTAP) can provide Montana’s residents with financial assistance to pay their property taxes. Their federal AGI must be at most $32,810 in 2023 to qualify for the program.
Inheritance and Estate Tax and Exemption
Montana has no inheritance or estate tax.
Am I a resident for Montana Income Tax Purposes?
Generally, an individual must reside in Montana to be eligible for in-state status. A Montana domicile requires physical presence and proof of intent to remain. Montana residents’ income is taxed, regardless of where it was made.
Resident Status Rules
Residents of Montana live in or maintain a permanent residence in the state.
Part-year Resident Status Rules
A part-year resident moved into or out of Montana during the tax year to establish permanent residency in the new state.
Nonresident Status Rules:
A nonresident of Montana does not live or work in the state.
Where is My Montana State Income Tax Refund?
You can usually find out your refund status after
- One week for e-filers
- Six weeks for paper filers
The official website for checking your Montana refund status is MTRevenue.gov/WheresMyRefund. To track your refund status, you must have your social security number and your refund amount. As a result of an increasing problem of identity theft and tax fraud, Montana has instituted safeguards that can delay refunds by up to 90 days. A refund may need to be verified by the department before it is sent.
The process may take longer if the department needs to verify information reported on your return or if additional information must be provided. Montana refunds may also be delayed by:
- Your return may contain math errors or adjustments.
- Your return included more than one form type.
- More complete information is needed when you return.
Why Did My Montana State Income Tax Increase?
Income tax can be affected by a variety of reasons. If your income tax has increased, some technical changes must be related to your filing. If your marital status changes or any deduction that was earlier valid but is not applied now, it can increase income tax. You must read between fine lines before filing Montana state income tax.
The governor, however, lowered the income tax rate the most to help Montanans keep more of their earnings and make Montana more competitive. According to his Budget for Montana Families, Montanans will pay 5.9% instead of 6.75 %. In 2021, the governor took office with a 6.9% rate.
Montana Sales Tax
The Montana State Tax Rate is from 1.00 percent to 6.75 percent for its residents. Corporate income tax in Montana is 6.75%. However, Montana does not charge a state or local sales tax. Meanwhile, use Beem’s Online tax filing assistance regardless of your employment status.
5 Things to Know About Montana Income Tax
Here are five essential things to know about Montana Income Tax:
- Elderly property owners and tenants above 62 years of age may be eligible for a refundable credit worth up to $1,150 if they rent or own a property in Montana for at least six months.
- Montana taxpayers who have claimed the EITC on their federal tax returns can claim 3% of the same EITC on their state tax returns.
- The corporate income tax in Montana is 6.75%.
- Montana has the 13th highest personal income tax rate in the US, at 6.9%.
- The cost of living in Montana is 1% higher than the national average, and housing costs are 4% higher than the national average.
FAQs
Q. Is Montana a high-tax state?
Yes, Montana is a high-tax state. In Montana, living costs, housing costs, and lifestyle maintenance are among the highest.
Q. Is Montana a tax-friendly state?
Montana is moderately tax-friendly, charging 6.75% of corporate taxes and 22% in marginal taxes on your income. It does not charge any sales tax, but still, due to high taxes, the cost of living is 1% higher than the national average.
Q. Is Montana an excellent place to live for taxes?
It depends on your situation. It is an excellent place to live after retirement, but there might be better ideas than staying there for business. The corporate tax and cost of living are higher in Montana than in other states nationwide.
Q. How much of my paycheck goes to taxes in Montana?
On average, Montana residents pay about 11.67 % of their income in taxes and 22% as a marginal tax. It is high compared to other states.
Q. Does Montana tax income earned in another state?
Yes, Montana Residents have to report income earned in different states. It will assist them in obtaining tax credits while filing tax returns.
Q. Does the state of Montana tax social security income?
Yes, Montana State taxes social security numbers. Whether you are eligible for certain deductions depends on your income and filing status. The deduction is available for single filers if their income is less than $25,000, and for joint filers, if their income is less than $32,000.
Q. Can Montana state income tax go up?
With changes and higher inflation throughout the country, taxes might increase in Montana. However, the taxes were recently reduced in 2023 by the governor from 6.75 percent to 5.9%.
Q. Do seniors have to pay state income tax in Montana?
Yes, seniors have to pay taxes in Montana. They are offered certain exemptions and benefits to ensure minimum taxes.
Q. Does Montana have a state income tax for the military?
The active duty payment in Montana is not taxable. Certain credits and exemptions are also applied to reduce taxes if other taxes are applicable.
Q. What are Montana’s state income taxes for LLCs?
Montana collects 6.75% of corporate income tax from its residents.
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