In recent years, Montana has focused on making life easier for its retirees, particularly those who depend on Social Security benefits.

These benefits, which are a lifeline for many seniors, are subject to state income tax in Montana, but there are ongoing efforts to change that. For retirees planning their financial future in the state, it’s important to understand what these changes could mean. This article provides a clear overview of Montana’s Social Security taxation laws, the proposed changes, and what retirees need to know to make informed decisions about their finances.

Current Taxation of Social Security Benefits in Montana

In Montana, Social Security benefits are subject to state income tax for individuals with a federal adjusted gross income (AGI) above $25,000. For married couples filing jointly, the income threshold is higher at $32,000. This means that retirees with modest incomes may find themselves paying state taxes on the benefits they receive from Social Security, even though the federal government does not tax those same benefits for most retirees.

While many states exempt Social Security benefits from taxation, Montana is not one of them. However, these rules have been a topic of debate among state lawmakers, and there have been calls to reduce the tax burden on retirees by eliminating taxes on Social Security benefits entirely.

Proposed Changes to Social Security Taxation

In 2023, Montana lawmakers introduced a bill that aimed to eliminate the state income tax on Social Security benefits. The goal was to provide tax relief to retirees, especially those who rely heavily on their Social Security income to cover their living expenses. If passed, this change would have helped ease the financial burden on many of the state’s senior residents.

However, the proposal faced some opposition, and ultimately, the bill did not pass. As a result, the taxation of Social Security benefits remains unchanged for now, and retirees in Montana still face state income tax on those benefits if their income exceeds the set thresholds.

Recent Developments: Cost of Living Adjustments

Despite the setback in the effort to cut Social Security taxes, there are some positive updates for retirees in Montana. In November 2024, retirees were informed of a 2.5% cost-of-living adjustment (COLA) increase to Social Security benefits for 2025. This increase is designed to help Social Security recipients keep up with inflation and rising costs.

For example, the average monthly Social Security retirement benefit will rise by about $47, bringing the total to $1,872 per month. While this is a welcome boost, it’s important to note that this increase could be partially offset by rising Medicare Part B premiums, which are expected to rise to $185 per month in 2025. Despite the COLA increase, many retirees may find that their benefit increases are eaten up by higher healthcare costs.

Impact of Social Security Taxes on Retirees

For now, Social Security recipients in Montana will continue to face state income taxes on their benefits unless state lawmakers decide to revisit this issue. If you are a retiree in Montana, it’s essential to plan for these taxes when budgeting for your retirement. Staying informed about changes in tax policies, like potential cuts to Social Security taxes, can help you make smarter financial decisions.

While the proposed changes didn’t pass, lawmakers are likely to revisit this issue in the future, especially as the number of retirees in the state increases. For now, retirees should stay updated on state legislative activities and consult with financial advisors to ensure they’re maximizing their benefits.

Montana has taken steps to ease the tax burden on its retirees, but the tax on Social Security benefits remains in place. Efforts to eliminate the tax have faced challenges, but future attempts may succeed as lawmakers continue to focus on supporting retirees. Retirees should continue to monitor tax laws and be proactive in planning their finances, considering the potential for future changes. Consulting with a financial advisor can help retirees navigate the complex landscape of state taxes and make the most of their Social Security benefits.