Montana Military Retirement Income Subtraction

"Montana exempts half of military retirement pay" is the sentence in almost every guide and it is wrong in a way that costs money. The subtraction at 15-30-2120(3)(n)(i) is capped by subsection (8) at the lesser of two numbers: the taxpayer's Montana source wage income on the return, or 50 percent of the military pension. Run that through. A retired sergeant major drawing $50,000 of pension who has stopped working has no Montana source wage income, so the lesser of the two numbers is zero and the subtraction is zero. The same retiree working a $20,000 job subtracts $20,000. Working a $60,000 job, the subtraction is $25,000, which is the half-pension figure. This is a benefit for a working-age retiree who takes a Montana job, and it was written that way on purpose. It is not a retirement income exemption. "Montana source wage income" is defined in subsection (8)(b) as wages, salary, tips and other compensation for services performed in the state, net income from a trade, business, profession or occupation carried on in the state, and net income from farming carried on in the state. Investment income, rental income and the pension itself are not in that list. The residency conditions in subsection (9) exclude a whole category of people, and this is the second thing that surprises readers. The subtraction may be claimed only by a person who either became a Montana resident on or after June 30, 2023, or was a Montana resident before beginning to receive the pension and remained one after. A veteran who retired from the service in 2010 and moved to Montana in 2016 fits neither: they became a resident before June 30, 2023, and they were already drawing the pension when they arrived. They get nothing. A veteran who made the same move in 2024 gets the subtraction. It runs for five consecutive years after the residency condition is satisfied, and then stops. It is not available at all to a taxpayer who claimed it and then became a nonresident. Who counts as a military retiree is broad: the armed forces as defined in 10 U.S.C. 101, the Montana Army or Air National Guard, the Army or Air National Guard of any other state, and any reserve component as defined in 38 U.S.C. 101. One correction that matters for anything written before the 2025 session. Senate Bill 104 of 2023 created the subtraction with a termination date of December 31, 2033. The 2025 Legislature removed that termination date in Senate Bill 93. Sources that tell a veteran the exemption is scheduled to expire in tax year 2033 are describing law that has been repealed. Montana does not tax VA disability compensation, because it is not in federal gross income to begin with and Montana starts from federal taxable income. There is no separate Montana subtraction for it and none is needed.