Montana has a state income tax, but no sales tax
Montana residents pay state income tax on wages, self-employment income, and investment gains. The state does not charge a sales tax on purchases — not at the register, and not on groceries, clothing, or services. This combination is unusual: most states that tax income also tax sales, and most states that skip sales tax still collect income tax.
The income tax rate depends on how much you earn. Montana uses a progressive system with seven tax brackets, meaning higher earners pay a higher percentage. The lowest bracket starts at 1% for incomes under a certain threshold, and the highest bracket reaches 6.9% for the highest earners. The exact income cutoffs change each year based on inflation.
Because Montana has no sales tax, you will not see tax added at checkout when you buy groceries, gas, or clothing. However, some specific items and services are taxed differently — for example, lodging taxes apply to hotel stays, and some counties charge local option taxes on specific goods.
Key Takeaways
- Montana collects state income tax on wages and self-employment income using seven tax brackets ranging from 1% to 6.9%, adjusted annually for inflation.
- The state has no sales tax, so nothing is added to your purchase at the register for most goods and services.
- Some specific items like hotel stays are subject to local lodging taxes, and certain counties may charge local option taxes on particular goods.
- If you work in Montana but live in another state, or vice versa, you may owe taxes to both states and will need to file accordingly.
How Montana income tax brackets work
Montana's income tax is calculated using tax brackets. You do not pay the top rate on all your income — you pay the lowest rate on the first portion, then the next rate on the next portion, and so on. For example, if the first bracket is 1% up to $3,000 and the second is 2% from $3,001 to $7,000, someone earning $5,000 pays 1% on the first $3,000 and 2% on the remaining $2,000.
The income thresholds for each bracket change every year. The Montana Department of Revenue publishes updated brackets in January. You can find the current year's brackets on their website, or your tax preparer will use the correct brackets when filing your return. The brackets apply whether you file as single, married filing jointly, married filing separately, or head of household.
Montana also allows a standard deduction — a set amount you can subtract from your income before calculating tax. The standard deduction amount varies by filing status and age, and it also changes annually. Deductions reduce the income that is actually taxed, which lowers your overall tax bill.
What is not taxed in Montana
Montana has no sales tax, which means purchases at stores, restaurants, and service providers do not have tax added at the point of sale. This applies to groceries, clothing, electronics, furniture, and most other goods. It also applies to services like haircuts, car repairs, and plumbing work.
However, Montana does tax certain specific items and services. Lodging — hotel rooms, vacation rentals, and similar accommodations — is subject to a lodging tax that varies by county and municipality. Some counties also charge local option taxes on items like alcohol, tobacco, or rental cars. These are separate from state income tax and are collected at the point of transaction.
Property tax in Montana is assessed by county and varies significantly depending on where you own land or a home. This is not a state tax but a local tax, and rates differ widely across the state. If you own property, your county assessor's office can tell you the rate in your area.
Montana income tax if you work across state lines
If you live in Montana and work in another state, you generally owe income tax to the state where you work. You may also owe Montana income tax, depending on Montana's tax reciprocity agreements and your specific situation. You will likely need to file a return in both states and claim a credit on one return for taxes paid to the other.
If you live in another state and work in Montana, you owe Montana income tax on the wages you earn here. You will also owe income tax to your home state on all your income. Again, you will file in both states and use a credit to avoid paying tax twice on the same income.
The rules for multistate taxation are complex and depend on which states are involved, whether you are an employee or self-employed, and how many days you work in each state. A tax preparer familiar with your situation can tell you exactly what you owe and where to file.
Self-employment and business income in Montana
If you are self-employed or own a business in Montana, you owe state income tax on your net business income — the money left after you subtract business expenses. You also owe federal self-employment tax, which funds Social Security and Medicare. Montana does not have a separate self-employment tax, but your state income tax is calculated on your net profit.
Montana does not charge a corporate income tax on C corporations, which is one reason some businesses incorporate in the state. However, S corporations, partnerships, and sole proprietorships do not pay a separate entity-level tax in Montana; instead, income passes through to the owners' personal returns and is taxed at the individual rate.
If you operate a business, you may also owe local taxes depending on your county and the type of business. Some counties charge business license fees or local option taxes. Check with your county clerk's office or a local tax preparer to understand what applies to your situation.
Retirement income and special deductions
Montana offers a deduction for certain retirement income. If you receive a pension or annuity from a may have access to retirement plan, you may be able to deduct a portion of that income from your Montana taxable income. The amount you can deduct depends on your age and the type of retirement income.
Social Security benefits are not taxed by Montana. If you receive Social Security, that income does not count toward your Montana income tax. However, if you have other income, you still owe tax on that other income.
Military retirement pay and certain other types of income may also receive special treatment under Montana law. If you receive income from a military pension, veterans' benefits, or other specialized sources, a tax preparer can tell you whether any portion is excluded from Montana taxation.
Filing your Montana income tax return
Montana income tax returns are filed with the Montana Department of Revenue. The federal tax deadline — usually April 15 — is also the deadline for Montana returns. You can file on paper using Form 2 (the Montana individual income tax return) or file electronically through the department's website or a tax software provider.
You must file a Montana return if your income exceeds the filing threshold for your filing status. The threshold changes annually and is published by the Department of Revenue. Even if you do not owe tax, you may want to file if you had taxes withheld from your paychecks, because filing allows you to claim a refund.
If you need help preparing your return, the Department of Revenue website lists free tax preparation resources and volunteer programs. You can also hire a tax preparer or use tax software. Keep records of your income, deductions, and any taxes paid throughout the year.
Frequently Asked Questions
Do I have to pay sales tax when I buy something in Montana?
No. Montana has no state sales tax, so nothing is added to your purchase at checkout. However, some specific items like hotel rooms are subject to local lodging taxes, and certain counties may charge local option taxes on particular goods like alcohol or rental cars.
What is Montana's highest income tax rate?
Montana's highest state income tax rate is 6.9%, which applies to the highest income bracket. The exact income threshold for this bracket changes each year. You can find the current year's brackets on the Montana Department of Revenue website or ask your tax preparer.
Do I owe Montana income tax if I work in another state?
It depends on where you live and work. If you live in Montana and work in another state, you typically owe tax to the state where you work, and possibly to Montana as well. If you live elsewhere and work in Montana, you owe Montana income tax on your Montana wages. File in both states and use a tax credit to avoid double taxation.
Is Social Security taxed in Montana?
No. Montana does not tax Social Security benefits. If Social Security is your only income, you do not owe Montana income tax. If you have other income, you owe tax on that other income, but not on the Social Security portion.
Where do I file my Montana income tax return?
File with the Montana Department of Revenue by April 15 (or the next business day if April 15 falls on a weekend). You can file on paper using Form 2 or file electronically through the department's website or tax software. The department website lists free tax preparation resources if you need help.