Montana, home to seven State Forests and 53 State Parks, is a beautiful place to call home. Known for its iconic, snow-capped peaks, grassy plains, and wide-open spaces, Montana provides its residents with a breath of fresh air. In order to enjoy all the state has to offer, Montanans pay taxes to the government and the collected revenue goes toward funding public education, wildlife preservation, and other social services. To see how much you’re required to pay this year, use our free Montana state tax calculator.
If there’s one thing that’s certain in life, it’s taxes. They’re unavoidable, assessed at both the state and federal levels. While the Internal Revenue Service (IRS) is the authority that will come knocking at your door threatening wage garnishment if you try to avoid your financial liability, the Montana Department of Revenue is the taxing body to abide by in the Treasure State when worrying about your state tax burden.
The U.S. federal government gives each of its states the power to levy their own taxes, set at their own rates and apply them as they see fit. Montana, the fourth largest state in the country by area, imposes an income tax and property tax, but it’s one of five states that doesn’t charge a sales tax.
Rather than sales tax, Montana relies on income tax to generate the funding it needs for governmental operations and publicly-ran programs. At the close of 2018, the state’s revenue was up 18% over the same time last year. There’s plenty of opportunity in Montana with an actively growing economy, outpacing the growth of other states with an 8% spike in gross domestic product over the past five years.
About $2.4 billion of tax revenue was collected in total, which goes to budget spending on health care, transportation, law enforcement, and so forth; $57 million was collected in income tax (up 8.8%), but property tax made a significant contribution of $40.5 million — which is 53.7% higher than the year before.
That’s great news for the state, but not such great for homeowners in Big Sky Country. Unfortunately, those aren’t the only taxes that residents are required to pay. Many cities in Montana charge a local sales tax on most purchases, and you’ll have to pay an additional excise tax on alcohol, tobacco, and fuel. Read on to learn about each of these categories in depth after using our Montana income tax calculator.
The tax brackets in Montana are structured progressively, so the higher income you earn, the higher tax rate you pay. Low-income residents pay as little as 1% in income tax while top earners pay as much as 6.9% but that only applies to income over $17,900. That's different from states that have a flat tax rate that applies to everyone across the board universally.
There are seven income tax brackets that determine your rate of 1%, 2%, 3%, 4%, 5%, 6%, or 6.9%. When calculating Montana state taxes, be sure to consider your deductions and income subtractions to find your appropriate rate. The adjusted gross income (AGI) used for the federal tax calculator is likely higher than your taxable income in Montana and the tax rates are different than the seven set at the federal level.
Some subtractions to account for when calculating your adjusted gross income in Montana include:
- Interest from federal bonds or notes
- Active duty military income
- Social Security income
- Unemployment compensation
- State income tax refunds
You may also deduct the federal income tax payments you made throughout the year in addition to claiming a capital gains credit, both of which we’ll explain in greater detail later on.
Every taxpayer counts in Montana, where 46 out of 56 counties have an average population of fewer than six people. It's packed with migratory elk and grizzly bears, but it's one of the least populated states in the continental U.S. despite being the fourth largest in size.
That being said, the million-or-so residents who call the state home make it run by contributing personal income tax in Montana. Employees contribute their share throughout the year via wage withholding, or the money held back by an employer to pay for their workers' income taxes. This money is held in a trust and then paid to the state; how much money is withheld from each paycheck depends on the number of allowances you claim on your Form W-4.
If you're not certain how many allowances to claim, keep in mind that the higher the amount, the less taxes are withheld and the more money you walk away with. This might sound appealing, but bear in mind that if you fail to withhold enough throughout the year, you might have a steep bill come tax season in order to cover your outstanding liability.
Failure to pay personal income tax in Montana and to the IRS will result in penalties and interest charges, which can add up pretty fast and result in back tax debt that's difficult to climb out of. It's smart to withhold more taxes from your wages than less; although some see it as giving the government an interest-free loan, it's always better to look forward to a large tax return than to look for debt relief services.
Note: If you're self-employed and cut your own paychecks, then you don't have an employer who will withhold your wages to pay the federal and Montana income tax. Being your own boss means that you're responsible for budgeting your own income tax payments in addition to your FICA taxes for Medicare and Social Security.
If you invest in Montana, your profits are considered part of your taxable income. However, the state encourages economic growth by offering a capital gains tax credit equal to 2% of all net capital gains listed on your state tax return. In effect, that lowers the top possible rate to 4.9%.
Montanans also catch a break on sales tax, as there is no tax levied on goods and services sold within the Treasure State — which gets its name, by the way, from its rich mineral reserves of gold and silver that were found in the 1800s. Back then, only foreign miners who struck riches in the boomtown of Bannack, MO had to pay taxes on their loot in the 1860s. Now, anyone who lives in Beaverton County, home to the well-preserved ghost town that remains as a vestige of history, will have to pay income taxes to the state in addition to capital gains tax on their gold assets.
Visitors just stopping by, however, won't have to pay a sales tax on any souvenirs they pick up until they reach a Montana "resort area". In order for a town or region to count as a "resort", a major portion of the economy must be based on tourism and the population must be below 5,500 (2,500 for unincorporated areas).
Currently, there are only 10 cities that classify as resort areas and charge a 3% local tax:
- Red Lodge
- Virginia City
- West Yellowstone
- Big Sky
- Cooke City
- St. Regis
- Wolf Creek
The purpose of resort taxes in Montana is to offset the cost of wear and tear on local infrastructure in towns that have a high amount of visitors, but relatively few residents. This allows the municipality to maintain its roads and bridges without overburdening its local citizens.
If you live in or vacation at a resort in Montana, you'll pay a 3% local sales tax transactions at the following locations:
- Motels, hotels, and lodging or camping facilities
- Restaurants and fast food stores
- Bar, taverns, nightclubs, lounges, and other establishments that serve alcohol
- Destination ski resorts and destination recreational centers
The revenue collected from resort taxes in Montana create funding for certain communities to finance a variety of public services, so keep that in mind the next time you plan a ski trip to some of America’s finest mountains.
Montanans have hotly contested the prospect of adopting an optional local sales tax that would give citizens the opportunity to vote on whether they want to charge a sales tax in their city to fund projects. Earlier this year in 2019, the bill stalled in the legislature but as the population grows and property taxes increase unsustainable, this could change in the future.
Unfortunately, Montana residents will still have to pay taxes on some of the goods they buy. Across the country, states charge what are called "excise taxes" on certain products. They're often referred to as "sin taxes" because they are levied on items (such as alcohol and tobacco) that are considered adverse to health and to society in general.
Excise taxes are different than the general sales tax, which is set as a certain percentage of the total sale price and levied directly on consumers. Alternatively, an excise tax is a flat, per-unit rate imposed on business vendors but then passed onto customers. But similar to other state tax codes, Montana excises taxes are set by the state's legislature. So how do they compare to what other states chose to levy?
If you like to enjoy the apres-ski scene after a day on the slopes, you'll have to pay an additional alcohol tax on top of the Montana resort tax. Alcohol taxes in Montana are relatively high compared to the rest of the country; beer is only $0.14 per gallon but wine costs an extra $1.06 per gallon, which is the 12th highest in the nation.
Note: There's no liquor tax in Montana because it's an "alcoholic beverage control" (ABC) state. That means liquor sales are only permitted in state-controlled alcohol stores, also known as ABC stores. Because the state earns revenue on these sales, there's no need for an additional excise tax on liquor.
Smoking cigarettes hurts your health and your wallet. In the state of Montana, cigarettes costs an additional $1.07 per pack, which is the 22nd highest tobacco tax in the country. Partaking in this habit too frequently could put a serious dent in your budget; a pack per day will run you almost $400 extra in taxes per year.
Gasoline is another product that is subject to excise tax both in Montana and at the federal level. The fuel tax in Montana is $0.27 per gallon of gasoline or $0.28 per gallon of diesel.
Because Montana doesn't assess a sales tax, the state relies heavily on revenue gathered through property taxes. Public K-12 schools, cities, counties, water departments, firefighters, police officers, and hospitals all rely on property tax revenue to receive the services they need. If you own property in the Treasure State — which there is certainly plenty of — you'll have to pay a tax based on the "certified value" of your home. Unfortunately, you might be looking at a pretty steep bill.
The lowest property tax rate in Montana is in Fallon County (0.47%), but the highest property tax rate is in Blaine County (1.56%). On paper, Montana ranks 33rd highest in the U.S. for its property tax rate, which isn’t too bad at a median 1.19% rate compared to the national average of 1.08%.
However, these percentages are based on the value of the home’s worth. When you look at the amount paid in property tax in ratio of income earned, the figures are much more disparate. That’s because property taxes in Montana are based on three different components:
- The assessed value of the property
- The tax rate on the property
- The number of mills applied to the property
To the number of mills in each jurisdiction and the property tax due, homeowners must follow these steps:
- Calculate Adjusted Property Tax Revenue (APTR) — This is the jurisdiction’s previous property tax revenue increased by one-half of the average inflation rate over the three previous years.
- Calculate Maximum Mills — Find this number by taking the APTR, and dividing it by the Certified Taxable Value minus its Newly Taxable Value (set by the Dept. of Revenue). Then multiply by 1,000.
- Calculate Millage Rates — This equals the total number of mills from all jurisdictions for your property divided by 1,000.
- Estimate Property Tax — Property owners multiply the Taxable Value (assessed market value) by the Millage Rate to find their property tax.
Residential property is valued every two years, but even though property values are on the rise in thriving cities like Missoula, rural cities that have experienced slow or stagnant growth like Flathead are still experiencing a dramatic increase in property tax year by year. The range of mill rates means that some properties are disproportionately taxed.
If you take a look at the image below, you can how much Montanans pay in property taxes, broken up by share of income.
The lowest earners in the state pay over 5% of their income in property taxes while the top 20% pay less than half that amount. This can create a significant financial burden on taxpayers, but if you don’t pay your property taxes in Montana, you might eventually lose ownership of your home due to property tax lien sales.
A lien is a claim against your property, and the county treasurer in Montana can sell a tax lien certificate to a third party if you don’t pay your taxes, which the first half is due Nov. 20, the second half by May 31. To help taxpayers prevent this from happening, the state offers the Property Tax Assistance Program (PTAP) to citizens on a fixed or limited income. Depending on income and filing status, eligible individuals may receive a reduced property tax rate of 30%, 50%, or 80% applied to the first $200,000 of market value.
Note: Montana does not have an estate or inheritance tax for deceased property owners who passed away after 2005.
Fortunately, Montana tax credits further assist taxpayers by offsetting their liabilities. The state has many credits not available at the federal level that individuals, families, and businesses may qualify for such as:
- Adoption Credit
- College Contribution Credit
- Innovative Education Program Credit
- Montana Elderly Homeowner/Renter Credit
- Qualified Endowment Credit
- Student Scholarship Organization Credit
This list just scratches the surface of tax credits in Montana that you may be able to claim on your state tax return. Talk to a professional to make sure you don’t leave any money on the table and claim every credit possible for your circumstances.
The state of Montana allows you to claim a personal exemption of $2,440 for yourself, your spouse, and any dependents you claim on your tax return, which reduces your total taxable income.
Deductions also reduce your taxable income and may lower your tax bracket. Residents have the option to claim the Montana standard deduction or itemized deductions. When married filing separately, each spouse must choose the same option.
The Montana standard deduction is 20% of your state AGI or the maximum amount per your filing status. For those who are single or married filing separately, the max is $4,580; if you are married and file jointly or as head of household, the max is $9,160.
Taxpayers also have the option of claiming itemized deductions rather than the standard, no-questions-asked amount. Some examples of items you may be able to itemize include:
- Home mortgage interest
- Real estate taxes
- Personal property taxes
- Medical and dental expenses
- Long-term care premiums
When using our Montana state tax calculator, don’t forget to deduct eligible expenses that can reduce your taxable income whether or not you itemize your return. If you claimed any of the following on your federal tax return, you may also do so on your state return:
- Student loan interest
- IRA contributions
- HSA contributions
- Educator expenses
To calculate your Montana tax refund, compare your taxable income to the amount of taxes you’ve paid throughout the year to see whether you over- or under-paid and can expect a refund from the state. You can find this information located on Form W-2.
Most employees contribute payments to their tax liability throughout the year. However, if you find that you did not withhold enough from your employer’s paycheck, then you’ll be required to pay the outstanding amount or risk falling behind in back tax debt. You have a few different ways you can pay Montana state taxes: online via direct debit or credit card, or by mailing a personal check to the Dept. of Revenue.
Montana follows the same IRS standards for self-employed individuals. If you plan to make over $500 in earnings that are not subject to withholding, then you are required to pay 90% of your annual taxes over quarterly estimated payments. It must be 100% of the previous year’s tax bill, even if you don’t think you’ll earn as much this year. File Form ESW to fulfill your obligation.
Keep in mind that paying taxes in Montana is separate from the amount you may owe the federal government. If you need to make a tax payment, be sure to settle your bill with the IRS as well.
This information is accurate as of 2019. Special circumstances that can affect your tax return may apply.
Resources: Flathead Beacon Montana’s Ridiculous Property Taxes; Great Falls Tribune Montana Tax Revenue up 18 Percent; Missoula Current Bullock Montana Budget; MT Dept. of Revenue Certified Values and Levies, Credits, Estate Tax, Individual Income Tax, Local Resort Tax, Property Tax Assistance Program; Sales Tax Handbook Montana