Montana Individual Income Tax Forms And Instructions

2006 Montana Individual Income Tax Instructions

Please note that you may also be charged a penalty for

Premature distributions and early withdrawals of your

making any nonqualified withdrawal. See the instructions

retirement income do not qualify for the retirement income

on Form 2, line 68 and on Form MSA-P for the Montana

exclusion. Also, if you have received a disability pension,

medical care savings account 10% penalty.

which is identified as a distribution code 3 on your 1099R,

you should use the disability pension worksheet Montana

Subtractions – Lines 26 through 33

Form DS-1 to determine your deduction instead of the

retirement income exclusion.

Line 26 – Exempt Interest and Mutual Fund Dividends

from Federal Bonds, Notes and Obligations. If you have

If you have received retirement income other than Tier II

received interest on United States government obligations

Railroad Retirement benefits, you should complete Form

and mutual fund dividends attributable to that interest, you

W, Worksheet IV on page 50 in order to determine the

can subtract these amounts from your federal adjusted

amount of your exclusion. Your retirement exclusion is

gross income as long as they are included in your federal

limited to the lesser of your taxable retirement income

adjusted gross income on Form 2M, line 20. In addition, if

that you have received or $3,600, as long as your federal

you received interest on obligations from U.S. territory or

adjusted gross income is $30,000 or less and you are filing

government agency obligations that are specifically exempt

a single return, filing jointly with your spouse and only one

by federal law and any mutual fund dividends attributable

of you have taxable retirement income, or you are filing as

to this interest, you can subtract these amounts from your

head of household. If you are filing jointly with your spouse,

federal adjusted gross income as long as they are included

and both of you have retirement income, and your federal

in your federal adjusted gross income on Form 2M, line 20.

adjusted gross income is $30,000 or less, you both can

exclude the lesser of your taxable retirement income that

Obligations that are guaranteed by the United States

you receive personally or $3,600 each for a maximum of

government are not tax exempt. If you have received

$7,200.

interest or mutual fund dividends attributable to

Government National Mortgage Association (Ginnie Mae)

When your federal adjusted gross income exceeds

bonds, Federal National Mortgage Association (Fannie

$30,000, your retirement exclusion is reduced $2.00 for

Mae) bonds, or Federal Home Loan Mortgage Corporation

every $1.00 that your federal adjusted gross income is

(FHLMAC) securities, you cannot subtract this interest or

over $30,000. For example, if your federal adjusted gross

mutual fund dividends since they are not exempt under

income is $31,000, your retirement exclusion is $1,600

federal law.

($3,600 – ($1,000 x $2.00) = $1,600). You are not entitled

to this retirement income exclusion if your federal adjusted

United States obligations that are exempt include:

gross income is greater than $31,800 ($3,600 – ($1,800 x

• Series E, F, G, and H savings bonds;

$2.00) = $0) if you are filing single, married filing separately

or head of household. If you are married and filing jointly

• U.S. treasury bills;

and both spouses have retirement income, then your

• U.S. government notes; and

retirement exclusion is phased out when your federal

• U.S. government certificates.

adjusted gross income is greater than $33,600 because

your maximum retirement exclusion is $7,200 (($3,600

Please refer to your federal Form 1099-DIV to determine

– ($1,800 x $2.00)) + ($3,600 – ($1,800 x $2.00)) = $0).

what percentage of your dividends qualifies for this

You should complete Form W, Worksheet IV on page 50

exemption.

to determine your partial pension and annuity income

exemption.

Line 27 – Exempt Unemployment Compensation. If

you have received unemployment benefits from Montana

Line 29 – Partial Interest Exemption for Taxpayers 65

or from another state, these benefits are not taxable to

and older. If you are single and are age 65 or older at the

Montana. If you reported taxable unemployment benefits on

end of 2006, you can exempt up to $800 of the interest

your Form 2M, line 12, enter the amount of these benefits

income that you reported in your federal adjusted gross

on line 27.

income.

Line 28 – Partial Pension and Annuity Income

If you are married and are filing a joint return with your

Exemption. If you have reported taxable retirement income

spouse and at least one of you is age 65 or older at the

on your Form 2M, lines 10b and/or 11b, you may be entitled

end of 2006, you can exempt up to $1,600 of the interest

to a partial exemption of this income. Before we determine

income that you reported in your federal adjusted gross

if any of this retirement income is excluded, we want to

income.

first find out if any of this income is from Tier II Railroad

Retirement benefits. If so, your Tier II benefits are 100%

exempt from Montana taxation. You should exclude your

entire taxable Tier II Railroad Retirement benefits on Form

2M, line 28.

Montana Individual Income Tax Forms And Instructions - 2006 Page 3

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