How Do Montana Income Tax Rebates Work?
Understand the key aspects of the Montana income tax rebate. Our guide details the state's one-time payment program for qualifying residents.
The state of Montana issued one-time income tax rebates to qualifying taxpayers based on their 2021 tax filings. This initiative, authorized by House Bill 192 and signed into law in March 2023, returned a portion of the state’s budget surplus to its residents. The program was designed to automatically distribute payments to those who met specific criteria without requiring an application.
Eligibility Requirements
To qualify for the individual income tax rebate, a person must have met several conditions tied to residency and tax filing history. The primary requirement was that the individual must have been a Montana resident for the entire 2021 calendar year. This rule ensured that the rebate was directed to those who were full-time residents during the tax year in question.
A taxpayer also needed to have filed a 2021 Montana resident tax return (Form 2) by the October 17, 2022 deadline, and filed a 2020 Montana resident or part-year resident return. The amount on line 20 of the 2021 Montana Form 2 had to be greater than zero. Furthermore, an individual could not be claimed as a dependent on another person’s 2021 federal or Montana income tax return.
Calculating Your Rebate Amount
The rebate amount was the lesser of either the tax liability reported on line 20 of the 2021 Montana Form 2 or a maximum amount set by the law. The state established different maximums for different filing statuses.
For individuals with a filing status of single, head of household, or married filing separately, the maximum rebate was $1,250. For example, a single filer with a tax liability of $800 would receive an $800 rebate.
For those who filed as married filing jointly, the maximum rebate amount was $2,500. For instance, a couple with a 2021 tax liability of $1,900 would receive a $1,900 rebate, while a couple with a liability of $3,000 would receive the maximum $2,500 rebate.
How to Receive Your Rebate
The Montana Department of Revenue’s rebate distribution process was automatic for eligible taxpayers, with no application required. The department used existing tax records to identify who qualified and to issue the payments. The issuance of rebates began in July 2023 and was completed by December 31, 2023.
The method of delivery depended on how a taxpayer had most recently interacted with the Department of Revenue. If a taxpayer received their 2021 tax refund via direct deposit or paid taxes electronically, the rebate was sent to the same bank account. All other individuals received a paper check mailed to the address on their most recent tax return.
For taxpayers who believed they were eligible but did not receive a payment, the Montana Department of Revenue provided an online tool. Individuals could visit the department’s TransAction Portal (TAP) and use the “Where’s My Rebate?” feature to check their eligibility and payment status.
Taxability of the Rebate
The tax treatment of the Montana income tax rebate differs at the federal and state levels. For federal income tax purposes, the Internal Revenue Service (IRS) generally treats state tax rebates as non-taxable if the recipient claimed the standard deduction on their 2021 federal return. If a taxpayer itemized their deductions and deducted the state income taxes they paid, a portion of the rebate might be considered taxable income.
At the state level, the law that authorized the payments, House Bill 192, explicitly states that the rebate is not subject to Montana income tax. This means recipients did not have to report the rebate as income on their subsequent Montana state tax returns. The payment was intended as a return of previously paid taxes and was not considered new income by the state.