How Does the Montana Standard Deduction Work?

An income tax standard deduction is a fixed dollar amount that taxpayers can subtract from their income. Recent legislative changes in Montana altered how the state’s deduction works. Effective from the 2024 tax year, Montana no longer has a state-specific standard deduction calculated as a percentage of income. Instead, the state uses a taxpayer’s federal taxable income as the starting point for the Montana Form 2. This means that if you claim the standard deduction on your federal tax return, that deduction is already factored into the income figure you begin with for your state taxes.

Calculating the Montana Standard Deduction

The relevant standard deduction amounts are the ones set by the IRS for the corresponding tax year. For the 2024 tax year, the federal standard deduction for a single individual or someone married filing separately is $14,600. For married couples filing jointly, the amount is $29,200, and for those filing as head of household, it is $21,900. There are also additional standard deduction amounts available for taxpayers who are age 65 or older or who are blind.

Previously, taxpayers had to calculate a separate deduction for their Montana return based on 20% of their Montana Adjusted Gross Income (AGI), which was subject to its own minimum and maximum limits. By adopting the federal taxable income figure, the need for this separate state-level calculation has been eliminated, making the initial step of preparing a Montana tax return more straightforward for those who do not itemize.

Eligibility for the Standard Deduction

Eligibility for taking the standard deduction on a Montana tax return is now determined by the rules governing the federal return. Since Montana starts its tax calculation with federal taxable income, if you are eligible for and choose the federal standard deduction, you will use it for Montana purposes as well.

There are specific circumstances that make a taxpayer ineligible. A married individual filing a separate return cannot claim the standard deduction if their spouse chooses to itemize deductions. In this scenario, both spouses must either itemize or take the standard deduction. Non-resident aliens are also not permitted to claim the standard deduction.

A rule applies to individuals who can be claimed as a dependent on another person’s tax return, such as a child or student. The standard deduction for a dependent is limited. For 2024, their deduction is the greater of $1,300 or their earned income plus $450, but the total cannot exceed the regular standard deduction for their filing status.

Choosing Between Standard and Itemized Deductions

The decision to take the standard deduction or to itemize is now made at the federal level and directly impacts your Montana tax liability. Itemized deductions are specific, eligible expenses that a taxpayer can subtract from their adjusted gross income to lower their taxable income. If the total of a taxpayer’s potential itemized deductions is greater than the standard deduction amount for their filing status, it is more advantageous to itemize.

Common expenses that can be itemized on a federal return include deductions for state and local taxes paid (up to a $10,000 limit), home mortgage interest, and charitable contributions. Medical and dental expenses can also be deducted, but only the amount that exceeds 7.5% of a taxpayer’s AGI.

Under the new law, Montana no longer offers its own separate list of itemized deductions. Previously, the state allowed for unique deductions such as 100% of medical insurance premiums and a deduction for federal income tax paid. These state-specific benefits have been eliminated with the move to conformity with the federal system. The choice between standard and itemized deductions is simplified to a single decision based on federal rules and which method provides the greater tax benefit on the federal return.