Montana retired pay

Is military retirement taxed in Montana?

Partly taxed

Partly. Up to Half Off for Working Retirees.

Only if you work in Montana, and only for five years. Since tax year 2024, a Montana resident retiree can subtract the lesser of 50% of military retired pay or Montana wage, business and farm income, if the retiree moved in after June 30, 2023 or was already a resident when the pay began. A retiree with no Montana earnings pays tax on all of it, at rates up to 5.65% for 2026.

The law: 15-30-2120(3)(n), (8) and (9), MCA
Current rule since: tax year 2024 (Ch. 650, Laws of 2023); SB 93 (Ch. 586, Laws of 2025) ended the December 31, 2033 sunset and reads 'on or after June 30, 2023' for tax years after 2025
Where you claim it: Form 2, Schedule I, Part I, line 13, with Form WMRE attached (Form WMRE Part II, line 8 for retirees; Part III, line 2 for survivor benefits)

Read on Montana’s own sources October 9, 2026

What Montana’s rule is worth on your retired pay

Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at Montana’s top 5.65% rate for 2026 (taxable income of $47,500 or more single, $95,000 joint) for tax year 2026; change it to your own bracket if you know it.

One rate applied to the whole amount, not Montana’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.

How it works in Montana

Begin with Form WMRE, Part I. Enter the date you became a Montana resident; a lifelong resident enters a birthdate. If you became a resident before July 1, 2023 and your retired pay started before that move, the form says to stop, because you do not qualify.

Part II does the arithmetic. Line 1 is taxable retired pay from the DFAS 1099-R (box 2a, with code 7 in box 7). Lines 2 to 5 add Montana wages, sole proprietor income, partnership and S corporation income, and farm income, entering zero for any loss. Line 8, the lesser of half the pension or those earnings, goes to Form 2, Schedule I, Part I, line 13. A couple filing jointly completes one form even when both spouses qualify.

On an assumed $40,000 pension the ceiling is $20,000. With $25,000 of Montana wages the full $20,000 comes off, worth about $1,130 at the 2026 top rate of 5.65%. With $8,000 of wages only $8,000 comes off. With no Montana earnings, nothing does.

The five years run consecutively from the first year you qualify, claimed or not. The Department of Revenue's example has a resident who retires in 2025 claiming through 2029, and a retiree who moved in during 2024 claiming through 2028. Residents from before July 1, 2023 who began drawing pay while living in Montana get tax years 2024 through 2028.

Moving away ends it for good. Under 15-30-2120(9), MCA, the subtraction is not available to a taxpayer who claimed it and then became a nonresident, and the department's example says that holds even after a later return to Montana.

Survivor Benefit Plan annuities

50% subtraction, no work test. A resident beneficiary of the Department of Defense Survivor Benefit Plan can subtract up to 50% of the annuity through Form WMRE Part III and Schedule I, line 13, subject to the same residency test and five-year limit. Death benefits coded 4 on the 1099-R do not qualify (2025 Form WMRE instructions).

Active-duty pay in Montana

Exempt. A Montana resident on active duty in the regular armed forces subtracts basic, special and incentive pay on Schedule I, line 12, and Guard members can subtract Title 10 and certain Title 32 active duty pay, but not annual training, drill or AGR pay (2025 Form 2 instructions).

What trips Montana retirees up

The 2025 Form WMRE says "Senate Bill 124, passed in 2025, repealed this expiration date," meaning the December 31, 2033 end date. Legislative records show the bill that did it was SB 93 (Chapter 586, Laws of 2025), which applies to tax years after 2025, and the Department's own 2025 Form 2 instructions name SB 93; SB 124 dealt with electronic license privacy. SB 93 also changed the move-in test from after June 30, 2023 to on or after that date.
SB 93's title says it eliminates the 5-year limit, but the enrolled text strikes that limit and then reinserts it word for word. The five-year cap survives in 15-30-2120(9)(b), MCA.
Every Montana taxpayer 65 or older gets a separate $5,660 subtraction for 2025 ($11,320 when both spouses on a joint return qualify), with no work test. It is the one break a nonworking older retiree still gets.
Retired Guard and Reserve members qualify: the statute covers the Army and Air National Guard of Montana or any other state and the reserve components, as well as the active armed forces.

Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. Montana’s other servicemember protections are on the Montana SCRA page.

Frequently asked questions

Does Montana tax military retirement?

Yes, at least half of it, and all of it unless you also earn Montana wages, business or farm income. Under 15-30-2120(3)(n), MCA, a resident retiree can subtract the lesser of 50% of military retired pay or Montana wages, business income and farm income, for five consecutive years. The retiree must have moved to Montana after June 30, 2023 (on or after that date from tax year 2026) or have lived there before the pay began and stayed. Claim it on Form 2, Schedule I, Part I, line 13 with Form WMRE attached, per the 2025 instructions read October 9, 2026. Everything else is taxed at rates up to 5.65% for 2026.

I don't work. Do I get the Montana military retirement exemption?

No. Form WMRE says a resident military retiree who did not earn Montana source income from a job, a business or a farm does not qualify, because the subtraction is the lesser of half the pension or that earned income. A retiree with only a pension and investment income subtracts nothing under this rule. One separate break remains: every Montana taxpayer 65 or older subtracts $5,660 for 2025, or $11,320 when both spouses on a joint return are 65, according to the 2025 Form 2 instructions.

Is SBP taxed in Montana?

Half of it can come off. A resident beneficiary of the Department of Defense Survivor Benefit Plan, including a spouse, an eligible child or an insurable interest, can subtract up to 50% of the annuity, with no work requirement. The same residency test and five-year limit apply. Use Form WMRE Part III and carry the result to Form 2, Schedule I, Part I, line 13. Death benefits reported with code 4 on the 1099-R do not qualify, according to the 2025 Form WMRE instructions read October 9, 2026.

How many years can I claim the Montana working military retiree exemption?

Five consecutive years, counted from the first year you meet the residency test, whether or not you claim it that year. The Department of Revenue's example: a resident who retires in 2025 can claim through 2029, and someone who moved in during 2024 can claim through 2028. Retirees who lived in Montana before July 1, 2023 and began drawing pay as residents get 2024 through 2028. SB 93 (2025) kept the five-year limit even though its title says it removes it, and it ended the old December 31, 2033 sunset.

Sources, read October 9, 2026

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