Calculation of Individual Income Taxes

The following is an overview of Montana's individual income tax calculation.

Total Income

Total income includes salaries and wages, interest and dividends, state refunds, alimony, net business income, capital gain income, pension income, rents and royalties, net farm income, unemployment compensation, social security benefits and any other miscellaneous income.

Less Federal Adjustments to Income:
- Educator Expenses
- Certain Business Expenses of Reservists, Performing Artists and Fee-Basis Government Officials
- Health Savings Account Deduction
- Moving Expenses
- One-half of Self-Employment Tax
- Self-Employed SEP, SIMPLE, and Qualified Plans
- Self-Employed Health Insurance Deduction
- Penalty on Early Withdrawal of Savings
- Alimony Paid
- IRA Deduction
- Student Loan Interest Deduction
- Tuition and Fees Deduction
- Domestic Production Activities Deduction
- Write-In Adjustments Allowed on Line 36, Federal Form 1040

Equals: Federal Adjusted Gross Income (FAGI)

Plus Additions and Less Subtractions to arrive at Montana Adjusted Gross Income.

Plus Additions
- Interest and Mutual Fund Dividends from Other States' State, County or Municipal Bonds
- Dividends Not Included in Federal Adjusted Gross Income
- Taxable Federal Refunds
- Taxable Montana Homeowners Property Tax Refund
- Other Recoveries of Amounts Deducted in Earlier Year That Reduced Montana Taxable Income
- Addition to Federal Taxable Social Security / Railroad Retirement
- Passive and Rental Income or Loss Adjustment
- Capital Loss Adjustment
- Sole Proprietor's Allocation of Compensation to Spouse
- Medical Care Savings Account Nonqualified Withdrawals
- First -Time Home Buyer Savings Account Nonqualified Withdrawals
- Farm and Ranch Risk Management Account Taxable Distributions
- Addition for Dependent Care Assistance Credit Adjustment
- Addition for Smaller Federal Estate and Trust Taxable Distributions
- Federal Net Operating Loss Carryover
- Share of Federal Income Taxes Paid by Your S Corporation
- Title Plant Depreciation and Amortization
- Premiums for Insure Montana Small Business Health Insurance Credit
- Other Additions
Less Subtractions
- Exempt Interest and Dividends from Federal Bonds, Notes, and Obligations
- Exempt Tribal Income
- Exempt Unemployment Compensation
- Exempt Workers' Compensation Benefits
- Exempt Capital Gains and Dividends from Small Business Investment Companies
- State Income Tax Refunds
- Recoveries of Amounts Deducted in Earlier Years that Did Not Reduce Montana Income
- Exempt Military Salary of Residents on Active Duty
- Exempt Income of Nonresident Military Servicepersons and Spouses
- Exempt Life-Insurance Premiums Reimbursement for National Guard and Reservist
- Partial Pension and Annuity Income Exemption
- Partial Interest Exemption for Taxpayers 65 and Older
- Partial Retirement Disability Income Exemption for Taxpayers Under Age 65
- Exemption for Certain Taxed Tips and Gratuities
- Exemption for Certain Income of Child Taxed to Parent
- Exemption for Certain Health Insurance Premiums Taxed to Employee
- Exemption for Student Loan Repayments Taxed to Health Care Professional
- Exempt Medical Care Savings Account Deposits and Earnings
- Exempt First -Time Home Buyer Savings Account Deposits and Earnings
- Exempt Family Education Savings Account Deposits and Earnings
- Exempt Farm and Ranch Risk Management Account Deposits
- Subtraction to Federal Taxable Social Security / Tier I Railroad Retirement
- Subtraction for Federal Taxable Tier II Railroad Retirement Benefits
- Passive Loss Carryover Exclusion
- Capital Loss Adjustment
- Subtraction of Sole Proprietor for Allocation of Compensation to Spouse
- Montana Net Operating Loss Carryover
- 40% Captial Gain Exclusion for Pre-1987 Installment Sales
- Subtraction for Business Related Expenses for Purchasing Recycled Material
- Subtraction for Sales of Land to Beginning Farmers
- Subtraction for Larger Federal Estate and Trust Taxable Distribution
- Subtraction for Wage Deduction Reduced by Federal Targeted Jobs Credit
- Subtraction for Certain Gains Recognized by Liquidating Corporation
- Other Subtractions

Equals: Montana Adjusted Gross Income

Less Itemized Deductions or Standard Deduction

Less Personal Exemptions

Equals: Montana Taxable Income

Montana Taxable Income x Tax Table Rate

Less 2% Capital Gains Credit

Equals: Tax After Capital Gains Credits

Less Other Montana Tax Credits:
- Nonrefundable Credits that are Single-Year Credits and Have No Carryover Provision
  - Credit of an Income Tax Liability Paid to Another State or Country
  - College Contribution Credit
  - Qualified Endowment Credit
  - Energy Conservation Installation Credit
  - Alternative Fuel Credit
  - Rural Physicians Credit
  - Health Insurance for Uninsured Montanans Credit
  - Elderly Care Credit
  - Developmental Disability Account Contribution Credit
  - Recycle Credit
  - Oilseed Crushing and Biodiesel Biolubricant Production Facility Credit
  - Biodiesel Blending and Storage Credit
- Nonrefundable Credits that Have a Carryover Provision
  - Contractor's Gross Receipts Tax Credit
  - Geothermal Systems Credit
  - Alternative Energy Systems Credit
  - Alternative Energy Production Credit
  - Dependent Care Assistance Credit
  - Historical Property Preservation Credit
  - Montana Capital Company Credit
  - Infrastructure User's Fee Credit
  - Empowerment Zone Credit
  - Increasing Research Activities Credit
  - Mineral Exploration Incentive Credit
  - Film Employment Production Credit
  - Adoption Credit
  - Increasing Research Activities Credit
  Refundable Credits
  - Elderly Homeowner/Renter Credit
  - $140 Homeowner Income Tax Credit for Property Taxes
  - Film Employment Production Credit
  - Film Qualified Expenditure Credit
  - Insure Montana Small Business Health Insurance Credit

Department of Revenue