Credits and breaks for Montana families: the 20% earned income credit, the 529 subtraction, and what Montana does not have

A Montana family’s state tax is shaped mostly by what happens on the federal return. Form 2 starts from federal taxable income, so the standard deduction, $24,150 for head of household and $32,200 joint for 2026, comes off before Montana starts, and so do the deductions for tips and overtime that many working parents now have. Montana then adds two things of its own that matter to families: a refundable earned income credit equal to 20% of the federal EITC, doubled from 10% for 2026 by House Bill 337, and a subtraction of up to $4,600 per taxpayer, $9,200 on a joint return, for money put into a 529 college savings plan. What Montana does not have is as important to know. There is no state child tax credit, no child and dependent care credit, no dependent exemption and no K-12 tuition credit. The federal child tax credit reduces federal tax only; it never touches Form 2.

Head of household filers get a Montana bracket of their own: 4.7% on ordinary income up to $71,250 for 2026, between the single line of $47,500 and the joint line of $95,000. For 2027 the head of household line moves to $97,500. A single parent with wages under $71,250 pays 4.7% on all of it, which for most single parents is the whole return.

The Montana earned income credit

The Montana EITC is a percentage of the federal credit, figured on Worksheet A in the Form 2 instructions and claimed on Schedule III. For 2025 it was 10%. For tax years beginning after December 31, 2025, it is 20%. The Department’s EITC page still describes the 10% rate; its HB 337 notice confirms the increase to 20% for 2026. A family with a $5,000 federal credit gets $1,000 from Montana. The credit is refundable: if it exceeds the Montana tax, the difference is paid out.

Eligibility follows the federal credit. Whoever claims the federal EITC and was a Montana resident claims the Montana one; a nonresident does not qualify. A part-year resident prorates by the share of earned income that is Montana-source, and so do enrolled tribal members living on their reservation and resident active-duty service members, whose exempt income is left out of the proration (verify). Montana has not extended the credit to filers the federal rules leave out, so a worker under 25 without children, or a family filing with an ITIN, gets no Montana credit because they get no federal one.

The federal credit for 2026 tops out a little above $8,000 for a family with three or more children; the Montana credit on that is around $1,600. In 2025 the same family would have received half as much from Montana.

The 529 subtraction

Contributions to Achieve Montana, the state’s own 529 plan, or to any other state’s 529 plan are subtracted on Schedule I: up to $4,600 per taxpayer for 2026, or $9,200 on a joint return when both spouses contribute or the money comes from joint funds. The 2025 limits were $4,500 and $9,000, and the amounts are indexed each year. The account owner, the owner’s spouse, or a Montana-resident child who owns the account may claim it. The subtraction is for the year of the contribution only; there is no carryforward of an excess. Contributions to a prepaid tuition plan do not qualify.

The federal return never asks about 529 deposits, so this subtraction is the one most often left off a Montana return. At 4.7%, a $9,200 joint contribution saves $432 of Montana tax; at 5.65% it saves $520. Grandparents who are Montana residents and own the account get the same subtraction for their own contributions.

Recapture. Montana takes the subtraction back if a withdrawal is not for a qualified education expense, or if it comes from an account that has been open a year or less. The recaptured amount, up to the contributions that reduced Montana income, is taxed at the top Montana rate. Qualified expenses follow the federal list and are broad: college tuition, fees, books, supplies and equipment; room and board for a student enrolled at least half time; computers and internet access while enrolled; apprenticeship costs; up to $20,000 of student loan principal or interest for the beneficiary or a sibling; professional credentials and licenses; and up to $20,000 of K-12 tuition at a public, private or religious school. A 529-to-Roth IRA rollover is treated as qualified (verify).

ABLE accounts. Contributions to an ABLE account for a family member with a disability are subtracted the same way, up to $3,000 per taxpayer or $6,000 joint.

Child care

Montana has no child and dependent care credit; the old Form 2441-M deduction ended with the 2024 simplification. The federal credit for child and dependent care expenses reduces federal tax only. What does reach Montana is a dependent care flexible spending account at work: money run through the FSA comes out of W-2 wages before federal AGI, so it is out of Montana income too. For a family in the 4.7% bracket, the full $7,500 (verify) federal FSA limit for 2026 saves $353 of Montana tax on top of the federal savings. A family choosing between the FSA and the federal credit should count the Montana side when they decide.

Education

Montana has no tuition credit for college and no K-12 expense credit. The federal American opportunity and lifetime learning credits reduce federal tax only. Two Montana credits reward donations to education rather than spending on it: the Student Scholarship Organization credit, for gifts to an organization that funds private-school scholarships, and the Innovative Educational Program credit, for gifts to public school programs. Both are nonrefundable and capped by statute (verify amounts), and the Department allocates them on a first-come basis each year. A family that pays private school tuition does not get a credit for the tuition itself, but paying it from a 529 account that was funded with subtracted contributions gives the same tuition a 4.7% or 5.65% Montana benefit on the way in.

Head of household, dependents and the federal pieces

Montana uses the federal filing status, so a parent who qualifies as head of household federally is head of household in Montana and gets the $71,250 bracket. There is no Montana dependent exemption; the last one ended with 2023. A dependent’s value to a Montana return is indirect: the dependent makes the parent head of household federally, raises the federal standard deduction to $24,150, and qualifies the parent for the federal EITC that Montana then matches at 20%. The federal child tax credit, $2,200 per child for 2026, has no Montana counterpart.

Two more federal items flow through with no Montana adjustment. The adoption credit on the federal return has a Montana cousin, the Montana Adoption Credit on Form AC (verify amount). And a child’s own return, if a child has enough investment income to file, follows the federal kiddie tax computation into Montana taxable income.

What trips people up

• Expecting a Montana child tax credit or child care credit. Neither exists.
• A 529 contribution left off Schedule I because the federal return did not ask.
• Both spouses’ 529 contributions claimed on a joint return where only one spouse contributed from separate funds; the $9,200 needs both contributing or joint funds.
• A 529 withdrawal within a year of opening the account, which triggers recapture even for tuition.
• The Montana EITC claimed in full by a part-year resident; it is prorated.
• A dependent care FSA skipped in favor of the federal credit without counting the Montana savings.
• Private school tuition paid from the checking account when a seasoned 529 account could have paid it with subtracted dollars.