Exempt Military Income
You can subtract military pay from your adjusted gross income if:
- It comes from basic, special, and incentive pay from active duty in the regular armed forces, or
- It is National Guard or reserve salary from a contingency operation (10 USC 101) or homeland defense activity (32 USC 901), or
- It is a combat zone exclusion, included on your Form W-2, Box 1.
- If you are a commissioned officer, you can exclude additional combat zone pay if:
- You could not exclude all of your combat zone wages because it exceeded the enlisted pay for each part of the month you served in a combat zone, or
- If you were hospitalized as a result of your combat zone service.
If you claim this exemption, you must include verification of your military status such as your military orders with your income tax return.
Even if all of your income is exempt, Montana residents still must file a return.
Non-exempt Military Income
You can’t claim a military exemption if your military income is:
- Pay for annual or inactive duty training unless it is part of a contingency operation (10 USC 101) or homeland defense activity (32 USC 901)
- Pay for being a member of a reserve component unless it is part of a contingency operation (10 USC 101) or homeland defense activity (32 USC 901)
- Your salary as a member of the National Guard engaged in Active Guard and Reserve (AGR) duty.
- Retirement, retainer, equivalent pay or allowances
Nonresidents Stationed in Montana
Income Tax Returns for Nonresident Active Service Personnel
If you are not a Montana resident stationed in Montana, you do not need to file a Montana income tax return unless you have income from civilian work in Montana, such as:
- Work for the federal government, both on and off base
- Ordinary or capital gains
- Income from a small business
If you have any civilian income in Montana, you need to file a Montana individual income tax return.
Hunting, Fishing, and Trapping Licenses for Active Service Personnel
Normally, applying for a resident hunting, fishing, or trapping license makes you a Montana resident for tax purposes. But, if you are a temporarily stationed in Montana on active service, you and your dependents can be treated as residents when you apply for certain licenses without becoming a resident. (87-2-102, MCA)
You can apply as a resident for:
- Hunting Licenses
- Fishing Licenses
- Trapping Licenses
Montana Driver’s Licenses for Active Service Personnel
Montana law lets nonresident service members drive in Montana without a Montana driver’s license in a number of circumstances, but they may obtain a license without becoming a Montana resident for income tax purposes.
For more information on military driver’s licenses, see the Montana Department of Justice Motor Vehicle Division information on new residents and military services.
If you and your spouse are not residents of Montana, your spouse doesn’t need to pay Montana income tax.
The Military Spouse Residency Relief Act (MSRRA) generally requires a nonresident, nonmilitary spouse to pay income tax only in their home state.
Resident Military Spouse Joint Filing
If you are a Montana resident, you must report all of your income to Montana by filing a Montana individual income tax return, even if stationed outside the state. You may exempt your salary from active duty in the regular armed forces when filing your return.
Your spouse who is a Montana resident or who has Montana source income is also required to file. See Montana Residency for more details.
Servicemembers Civil Relief Act
Montana and the IRS allow all filers a six-month extension for filing their income tax returns, but this extension does not apply to paying the tax. (The IRS requires filing a form to get the filing extension; Montana does not.) For members of the military on active duty in the regular armed forces and serving in a combat zone or contingency operation, the Servicemembers Civil Relief Act grants an extension on payments if their service prevents them from paying their income tax.
The Servicemembers Civil Relief Act only applies to active duty personnel in the regular armed forces. If you are in the National Guard or serving in the reserves, the Act does not apply until you receive orders to enter active duty.
If you qualify under the SCRA, if you file within 180 days of your last day in a combat zone, you won’t be charged any penalties or interest.
See our web page on military active duty extensions for more information.
National Guard Service Members
Members of the National Guard have different tax requirements than other branches of the military.
Title 32 Active Guard Reserve (AGR)
If you are a member of the National Guard engaged in Active Guard and Reserve (AGR) duty, your pay isn’t tax exempt. Beginning January 1, 2017, the Defense Finance and Accounting Service began withholding Montana state income tax from your pay if you are a Montana resident AGR.
Life Insurance Reimbursements
You do not need to add life insurance reimbursements from the US Department of Defense during active duty in a contingency operation.
You can subtract reimbursements from the Montana Department of Military Affairs for premiums paid under service member’s group life insurance on your Montana gross income.
You can deduct travel expenses if you traveled more than 100 miles from home to perform services as a National Guard or reserve member.
This deduction is taken on Schedule 1, Line 11 of your federal Form 1040 and on Schedule 1, Line 11 of your Montana Form 2. You must include a copy of your federal Form 2106 or 2106-EZ with your return to claim this deduction.
When you retire from the U.S. armed forces, you lose coverage by the Federal Service Members Civil Relief Act. Treat your income, including your military pension, like other income for tax purposes.
See filing requirements for more information.
Property Tax Relief for Disabled Veterans
The Montana Disabled Veterans (MDV) Assistance Program helps disabled veterans or their unmarried surviving spouse by reducing the property tax rate on their home. The veteran must have 100% disability from an injury related to service.
The MDV reduction is based on income and marriage status. See the Montana Disabled Veteran Property Tax Assistance Program (MDV) for more information.