According to the Montana Department of Revenue, "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
Under senate Bill 104, taxpayers who become residents after June 30, 2023, or who began receiving military retirement income AFTER becoming a Montana resident, can exempt the lesser of half of their military retirement income or the amount of Montana source income (wages, business income, farming income).
The exemption is only available to five consecutive years after becoming a resident. If the taxpayer was a resident who began receiving military retirement while a resident of the state BEFORE June 30, 2023, the exemption can only be claimed for five years beginning with Tax Year 2024.
As amended, the exemption created by SB 104 is set to expire at the end of tax year 2029.