Facts about Montana’s Individual Income Tax

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Montana residents file a state tax return each year reporting various income sources, deductions and exemptions.  The Montana Department of Revenue produces a report every other year summarizing this information on a state and county level.  This report also provides similar information for non-residents filing a Montana income tax return as well but this article will focus on Montana residents.  The most recent report is based on 2016 calendar year earnings for 660,005 taxpayers.

Income

Montana residents earned $27 billion of income from a variety of different activities.  They are organized into seven categories in this particular report.  The first is wage income mostly like earned on an hourly or salaried basis for providing labor to a business.  Not surprisingly over 80% of returns report earning wage income.  This type of income accounts for about 64% of all income reported.  Investment income is the second most common (41% of returns) type of income reported.  This accounts for 10% of all reported income.  This type of income would include dividend payments, gains on the sale of stocks and interest earnings.  The thirds most common (29%) of income is retirement income.  This type of income accounts for 15% of all income reported.  This would include social security, defined benefit, 401k, 403b, IRA and other similar sources of income.  The fourth most common (28%) of income is other income.  This accounts for negative 1% of all income.  The fifth most common (18%) type of income is rental and royalty income.  This accounts for 10% of total income.  Ownership of rental properties or land would be the primary activities generating this type of income.  The sixth most common (16%) type of income is business income.  This generates 3% of all income reported.  It is important to note that many businesses file their own income tax filing and thus are not part of this report.  The seventh most common (4%) type of income is farm income.  Farm income accounts for negative 1% of all income. 

Exemptions and Deductions

The Montana tax code allow residents to deduct certain expenses from their total income before their income tax is calculated.  The report provides information on 14 of these deductions and a 15th category reporting the total of all other deductions.  The top ten deductions in terms of total dollars are:

  • Federal Income Tax Deduction ($1,346,734,218)
  • Home Mortgage Deduction ($952,870,880)
  • Medical and Insurance Deductions ($764,767,511)
  • Charitable Contributions ($671,597,209)
  • Property and Other Deductible Taxes ($562,881,713)
  • Self-Employment Expenses ($285,867,218)
  • Student Loan & Education Expenses ($59,505,021)
  • Health Savings Accounts ($41,732,511)
  • Investment Interest ($24,877,878)
  • Gambling Losses ($21,631,550)

The bottom line for all of this information is 660,005 Montana residents paid $977,558,658 in Montana income taxes on total income of $26,985,433,565.  This results in an effect tax rate of 3.6%.  Approximately, 63% of Montanans filed an income tax return for 2016.  All of the information that examined above is also available on a county by county basis and there is quite a bit of additional information provided beyond these highlights.  The entire report is available here.

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About Author

Joel Schumacher

Joel Schumacher, an extension economics associate specialist in the Department of Agricultural Economics and Economics at Montana State University. Much of his research has focused on understanding the economics and public policy implications of small and community scale alternative energy projects. Joel also researches and provides extension training in retirement planning, saving and investing. Helping Montanans stay up to date on the ever changing laws and regulations affecting consumer issues is an interesting and challenging area.

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