Does Montana Tax Social Security Benefits?

Montana is one of the few states that may tax Social Security benefits. The state first determines a baseline taxable amount based on federal rules and then allows certain taxpayers to reduce or eliminate this liability through a deduction. The rules for this deduction became more generous starting with the 2024 tax year, which you file in 2025.

How Montana Determines Taxable Social Security

Montana’s method for taxing Social Security begins with federal rules. If a portion of your benefits is taxable on your federal return (Form 1040), it is initially included in your income for your Montana tax return. The federal government taxes up to 85% of your benefits if your “combined income” exceeds certain thresholds.

Combined income is calculated by adding half of your Social Security benefits to your other income, including tax-exempt interest. For federal purposes, benefits become taxable for single filers with a combined income over $25,000 and for married couples filing jointly with a combined income over $32,000. If your income is below these federal levels, your Social Security is not taxed by Montana.

If your income is above these federal thresholds, the taxable amount from your federal return carries over to your Montana Form 2. This figure establishes the baseline for state tax purposes before any Montana-specific adjustments are made.

The Montana Social Security Deduction

You may be able to avoid paying state tax on your benefits because of a Montana-specific Social Security deduction. Beginning in tax year 2024, a more favorable deduction allows many retirees to subtract a portion of their taxable Social Security benefits from their state income.

This deduction is not based on income, offering a flat-rate subtraction for taxpayers aged 65 and over. For the 2024 tax year, an eligible taxpayer can subtract up to $5,500 of their federally taxable Social Security benefits. If you are married filing jointly and both spouses are 65 or older, you can combine subtractions for a total of up to $11,000.

Calculating and Reporting on Your Tax Return

To claim the Social Security deduction, you will enter your eligible subtraction amount on the designated line for subtractions on Schedule III of Montana Form 2. The amount you can subtract is the lesser of your federally taxable Social Security benefits or your eligible flat-rate amount ($5,500 per qualifying individual).

For example, a married couple, both over 65, files a joint return with $20,000 in federally taxable Social Security benefits. Because both spouses are over 65, they are eligible for a total deduction of $11,000 ($5,500 each). They would enter $11,000 on Schedule III, which reduces their taxable income for the state and lowers their final Montana tax liability.