Montana Nonresident Filing Requirements: Do You Need to File?

Filing taxes as a nonresident in Montana can be confusing, especially if you have income from the state but don’t live there. Determining whether you need to file is crucial to avoid penalties and comply with tax laws.

Nonresident Status Determination

Montana defines a nonresident as someone whose permanent home is outside the state and who does not maintain a significant presence there. Unlike states with a strict day-count test, Montana evaluates residency based on intent and connections, such as property ownership, voter registration, and business interests.

A person who temporarily works in Montana but maintains a permanent residence elsewhere is generally considered a nonresident. For example, if you live in Washington but take a six-month contract job in Montana without establishing permanent ties, you would likely be classified as a nonresident. However, leasing an apartment, registering a vehicle, or obtaining a Montana driver’s license could indicate residency. The Montana Department of Revenue reviews these factors on a case-by-case basis, making it important to keep records proving your primary residence is elsewhere.

Individuals who move into or out of Montana during the tax year are considered part-year residents. Unlike nonresidents, part-year residents must report all income earned while living in the state, regardless of its source.

Montana-Sourced Income Criteria

Not all income connected to Montana requires a state tax return. Nonresidents must report only income that originates within the state, including wages earned while physically working in Montana, rental income from Montana property, and business profits from Montana-based operations.

Investment earnings may also be taxable if they come from Montana sources. Interest from a Montana bank account is generally not taxable, but dividends from a business incorporated in the state may be. Capital gains from selling Montana real estate must be reported, regardless of the seller’s residency. Partnerships and S corporations operating in Montana may pass through taxable income to nonresident owners, requiring them to file a return even if they never worked in the state.

Certain types of income may be subject to withholding. Employers must withhold Montana state taxes from wages earned within the state, even for nonresidents. Rental or royalty payments made to out-of-state individuals may also have withholding obligations if the payer is a Montana-based entity. Failing to account for withheld taxes could lead to unexpected liabilities when filing a return.

Minimum Filing Thresholds

Montana sets income thresholds to determine whether a nonresident must file a state tax return. These thresholds are based on federal adjusted gross income (AGI) with Montana-specific modifications. For the 2024 tax year, a single filer under 65 must file if their modified AGI from Montana sources exceeds $5,290. For married couples filing jointly, the threshold is $10,580. Taxpayers 65 or older have slightly higher thresholds due to Montana’s tax treatment of retirement income.

These thresholds apply to total Montana income before deductions or credits. Even if deductions reduce taxable income to zero, a return may still be required if pre-deduction income exceeds the filing limit. This is particularly relevant for nonresidents with irregular income, such as contract workers or seasonal employees, whose earnings may fluctuate above and below the threshold.

Taxpayers with Montana income below the threshold are generally not required to file, but filing may be beneficial in some cases. If Montana taxes were withheld from wages or payments, filing a return may allow a refund. Those eligible for Montana-specific credits, such as the Elderly Homeowner/Renter Credit, may need to submit a return to receive the benefit.

Required Tax Documents

Filing a Montana tax return as a nonresident requires specific documents to report income and claim deductions or credits. The primary form is the Montana Individual Income Tax Return (Form 2), which includes a section for nonresidents to allocate only Montana-sourced income. Since Montana’s tax system follows federal guidelines, a completed federal tax return (Form 1040) is essential, as it serves as the basis for state income calculations.

Wage earners must include Form W-2, which details Montana income and any state taxes withheld. Independent contractors and self-employed individuals will need Form 1099-NEC or 1099-MISC if they received payments from a Montana business. Those earning rental income or business profits from partnerships or S corporations operating in Montana will require Schedule K-1, which outlines their distributive share of income. Unlike some states, Montana does not impose a separate nonresident withholding tax on partnerships, but reporting requirements still apply.

Potential Penalties

Failing to file a required Montana tax return can result in penalties and interest charges. The state imposes a late filing penalty of 5% of the unpaid tax per month, up to a maximum of 25%. If no return is filed, the penalty continues accruing until the state takes enforcement action. A separate late payment penalty applies if taxes are owed but not paid by the due date, starting at 1.2% per month and compounding until the balance is settled.

Interest is also assessed on unpaid taxes, calculated at a variable rate set by the Montana Department of Revenue. As of 2024, the interest rate is 8% annually, applied from the original due date of the return. If Montana determines a taxpayer intentionally failed to file or underreported income, additional penalties may apply, including a fraud penalty of up to 75% of the unpaid tax. To avoid these consequences, nonresidents should ensure they meet all filing obligations and pay any taxes owed by the April 15 deadline.

Allocation of Deductions

Nonresidents filing a Montana tax return can only claim deductions related to their Montana-sourced income. The state requires taxpayers to prorate deductions based on the proportion of income earned within Montana compared to total income.

For example, if a taxpayer earns $50,000 in total income, with $10,000 sourced from Montana, only 20% of itemized deductions can be applied to the Montana return. Common deductions that require allocation include mortgage interest, state and local taxes, and charitable contributions. Montana allows either the standard deduction or itemized deductions, but nonresidents must use the allocated portion. The standard deduction for 2024 is $5,140 for single filers and $10,280 for joint filers, with nonresidents applying the same income-based proration method.