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Big changes coming to Montana's income tax structure

Income Tax Brackets
Posted at 7:08 PM, Dec 27, 2023
and last updated 2023-12-27 21:30:59-05

HELENA — With the new year approaching, big changes are coming to Montana’s income tax system.

Back in 2021, the Montana Legislature approved a major overhaul to the state income tax structure, with the most significant adjustments set to take effect at the start of 2024. You won’t see the changes when you file your income tax return in the coming months, but they’ll be very noticeable the following year.

Senate Bill 399, sponsored by Sen. Greg Hertz, R-Polson, makes a wide range of reforms – including to who has to file income tax returns, how they’ll file and the rates they’ll pay. Supporters said the goal of the law is to simplify income taxes in the state.

Montana currently has seven tax brackets, based on levels of income – with a different tax rate for each, ranging from 1% on the lowest bracket to 6.75% on the highest.

Under the new law, that will be reduced to two brackets, with a 4.7% lower rate and a 5.9% higher rate. The Montana Department of Revenue reports the higher rate will apply to income above $20,500 for single taxpayers and married couples filing separately, above $30,750 for heads of household and above $41,000 for married taxpayers filing jointly and qualifying surviving spouses.

Under SB 399, taxpayers will have to use the same filing status for their state and federal returns. Most notably, that means married couples won’t be able to file separately for Montana if they file jointly on the federal return.

In addition, the state taxable income will be tied to federal taxable income – a change that means thousands more lower-income Montanans won’t have to pay any state income taxes, because of the higher federal standard deduction.

SB 399 also eliminated a number of tax deductions and credits. Many of those changes have already been implemented.

In 2021, Hertz told MTN he had wanted to implement the full overhaul sooner, but lawmakers decided to delay it to make sure it fit with federal requirements that forbid states from using American Rescue Plan Act money to cut taxes.

An analysis shared by MTN in 2021 found SB 399 would likely have a diverse impact on taxpayers, with a mixture of households in each income level experiencing higher and lower taxes.

When the bill was initially passed, it set the higher tax rate at 6.5%, but during the 2023 legislative session, lawmakers approved Senate Bill 121, which lowered it to 5.9%.

Again, income tax returns due this April will be based on the 2023 tax rules. The new rules will come up when you’re filing in April 2025.


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