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Montana Department of Revenue discusses income tax changes

Mitchell Building
Posted at 5:50 PM, Jan 05, 2024
and last updated 2024-01-05 19:50:51-05

HELENA — Last week, MTN looked at some big changes to Montana income taxes, taking effect for this tax year. Now, we’re following up with the Montana Department of Revenue to find out more about what taxpayers should know.

Rachael Milne, a tax specialist with the department, says the end result of the changes implemented Jan. 1 will be a simpler income tax system – but it’s taken a lot of work for Revenue to get ready.

“We've had to do a complete overhaul of our forms,” she said. “We're going to have to work on updating our whole tax system that houses all of our tax returns and tax accounts – and we're also just going to have to educate the public, too, so that’s also a huge feat.”

In 2021, the Montana Legislature approved Senate Bill 399, sponsored by Sen. Greg Hertz, R-Polson. The bill gave a major overhaul to the state’s income tax system, but the most substantial changes were delayed until 2024.

The tax returns Montanans file this April will still be under the old rules. When you file in 2025, you’ll use a form that looks much different.

“Yes, they're not going to be 12 pages long,” said Milne, laughing.

SB 399 reduced Montana’s seven tax brackets to two – with a 4.7% lower rate and a 5.9% higher rate. Those brackets will also now be adjusted based on your filing status. The higher rate will apply to income above $20,500 for single taxpayers and married couples filing separately, above $30,750 for heads of household and above $41,000 for married taxpayers filing jointly and qualifying surviving spouses.

Milne said it’s hard to say the exact impact the new law will have on an individual taxpayer because of the many factors involved. Taxpayers will have to use the same filing status for federal and state returns, so married couples won’t be able to file separately for Montana if they file jointly on the federal return. Some state-specific exemptions will no longer apply. The state taxable income will be tied to federal taxable income, so more people who don’t have to file federal returns won’t have to file Montana returns.

In addition, the 2023 Legislature passed several additional changes to income taxes. Senate Bill 121, sponsored by Sen. Becky Beard, R-Elliston, lowered the top tax rate below what had been set in SB 399, and it also increased the state earned income tax credit for low- and middle-income Montanans.

“I think most single folks will see a cut,” Milne said.

Again, the tax changes will not be reflected in the returns filed this year – but your income and withholdings starting Jan. 1 will determine your tax liability and potential refund when you file a return next year.

Milne encouraged taxpayers to consider filing a new state withholding form, Form MW-4, to make sure your employer holds the right amount from your paychecks throughout the year.

“If you don't go out and fill out a new MW-4, you may not be having enough withheld, or you may be having too much withheld, just because the whole way we figure out Montana taxable income’s changed,” she said.

The Department of Revenue is planning to hold a webinar Jan. 22 (https://mt-gov.zoom.us/webinar/register/WN_K5wJ2oZCQS-acjS90P2VGQ#/registration) to help taxpayers and tax preparers learn more about the income tax simplification.