According to the Montana instructions, "when you retire from the U.S. armed forces, you lose coverage by the Federal Service Members Civil Relief Act. Treat your income, including your military pension, like other income for tax purposes."
NOTE: Legislation Affecting Tax Year 2024
Starting in tax years 2024, Montana residents who became residents after June 30, 2023 or were residence before July 1, 2023 and began receiving military retirement income or survivor benefits while a Montana resident may exempt part of their military retirement income or military survivor benefits from their Montana taxable income.
It is important to note that the exemption titled Montana Working Military Retirement and Survivor Benefit Exemption is not available to residents that became residents before July 1, 2023 if they began receiving military benefits before they became Montana residents.
The income must be received for retirement or survivor benefits received for service in the U.S. Armed Forces, Air National Guard, Army National Guard, or a U.S. Reserve Component.
What is the exemption?
The exemption for military retirees is the lesser of:
- the total Montana sourced income from:
- Net income from trade or business
- Wages, salary, and tips from compensation performed in Montana
- Net income from farming activities in Montana, or
- 50% of the taxpayer's military retirement income received from DEFAS (Defense Finance and Accounting Services
Individuals receiving military survivor benefits under the U.D. Department of Defense's Survivor Benefit Plan can exempt 50% of their military survivor benefits from their Montana income. Death benefits do not qualify for this exemption.
When can I claim the exemption?
The Montana Working Military Retirement and Survivor Benefit Exemption may only be claimed for five consecutive years after meeting the eligibility requirements. Any eligible beneficiaries or retirees who were residents before July 1, 2023 will have the exemption available for five years beginning with the tax year 2024. The last year that this exemption can be claimed is 2028.
Where do I enter the exemption?
The exemption can be entered following this path
- Federal
- State (three dots select edit)
- Subtractions from income