How Montana State Income Tax Works
Montana's income tax was recently simplified from seven brackets to two. Here's the current landscape for residents, part-year residents, and nonresidents.
Current rates (post-reform)
Bracket 1: 4.7% on income up to ~$20,500 (single) / ~$41,000 (MFJ) — indexed annually.
Bracket 2: 5.9% on income above those thresholds.
The old seven-bracket system is gone. Simpler, but many mid-income filers now pay a slightly higher effective rate than they used to.
Filing status
Married couples in Montana can file jointly OR file separately even if they file jointly federally. This 'married filing separately on the same return' option often produces a lower Montana bill when both spouses have income.
This is one of the most-missed Montana tax opportunities.
Montana-specific deductions
Federal tax deduction has been eliminated in the reform.
Standard deduction: about 20% of AGI (subject to floor and cap).
Itemized deductions largely mirror federal, but you can itemize on Montana even if you took the federal standard.
Credits worth knowing
Earned Income Tax Credit (Montana): 10% of federal EITC.
Elderly Homeowner/Renter Credit: for low-income seniors.
Alternative Energy Systems Credit: for solar, wind, geothermal.
College Contribution Credit: for gifts to Montana university foundations.
Part-year and nonresidents
Part-year residents pay Montana tax on all income earned while a resident plus Montana-source income earned while nonresident.
Nonresidents (out-of-state workers earning MT income) file Form 2 with only Montana-source income.
Residency is fact-based: domicile, driver's license, voter registration, time spent in state.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.