Working Military Retirement Exemption

Montana resident working military retirees may be eligible to exempt a part of their military retirement income from Montana taxable income. The exemption also applies to resident beneficiaries receiving military survivor benefits.

Exemption Overview

  • 50% of the taxpayer’s military retirement income received from the Defense Finance and Accounting Service (DFAS), or
  • The amount of the Montana source income from:
    • Wages, salary, and tips from compensation performed in Montana
    • Net income from a trade or business in Montana
    • Net income from farming activities in Montana

Beneficiaries receiving military survivor benefits under the U.S. Department of Defense’s Survivor Benefit Plan can exempt up to 50% of their military survivor benefits. Eligible beneficiaries include spouses, eligible children, or an “insurable interest” as defined by U.S. Department of Defense. Military survivor benefits do not include death benefits.

Eligibility

The retirement income or survivor benefits must be received for service in the U.S. Armed Forces which includes:

  • Army 
  • Navy
  • Air Force
  • Marine Corps
  • Coast Guard
  • Space Force
  • Army National Guard
  • Air National Guard
  • A U.S. Reserve Component

The retiree or beneficiary must have:

  • Become a resident after June 30, 2023, or
  • Been a resident before receiving military retirement income or survivor benefits and remained a resident thereafter

The exemption is not available to retirees that become nonresidents after receiving the exemption in a previous tax year.

For example, if a retiree becomes a resident in 2024, then becomes a resident of another state in 2026, the retiree is no longer eligible for the exemption, even if the retiree reestablishes residency in Montana in a later tax year.

I am a Montana resident that retired from the military. Can I claim the exemption?

Yes, you can claim the exemption for 5 consecutive years from the year you retired or from tax year 2024.

I retired from the military while a resident of another state, but I have recently moved to and established Montana residency. Can I claim the exemption?

Yes, as long as you moved to Montana and established residency after June 30, 2023, you can claim the exemption for 5 consecutive years from the year you established residency.

I am retired from the military, and I am a resident in another state. I have Montana income (wages, business income, etc.) and file a Montana Individual Income Tax Return. Can I claim the exemption

No, you are not eligible for the exemption if you are not a resident of Montana.

I receive military survivor benefits, and I moved to Montana recently. Can I claim the exemption?

Yes, as long as you moved to Montana and established residency after June 30, 2023, you can claim the exemption for 5 consecutive years from the year you established residency.

Deduction Limitations

The deduction can only be claimed for five consecutive years after meeting the eligibility requirements. For example, a servicemember who is a Montana resident retires from the military in 2025. The last year to claim the deduction is 2029 even if it is not claimed in 2025. Similarly, a military retiree who moved to Montana and became a resident in 2024 can only claim the deduction through 2028.

How to Claim the Deduction

Claimants must attach the Form WMRE to the Montana Individual Income Tax Return (Form 2) to take the deduction.