What’s new in Montana for 2026: a lower top rate, a wider bracket, a doubled EITC

Three things make the 2026 Montana return different from the 2025 one. First, the rate cut: 4.7% now reaches up to $47,500 of Montana ordinary income on a single return, $71,250 head of household and $95,000 joint, and everything above those lines is taxed at 5.65% instead of 5.9%. Second, the federal tax law of July 2025 arrived in Montana without a vote. Because Form 2 starts from federal taxable income, the new deductions for tips, overtime, seniors and car-loan interest cut Montana tax too. Third, the Montana earned income credit is 20% of the federal credit, up from 10%. The rate cut goes further in 2027, to 5.4% above $65,000 single and $130,000 joint, so this is the first of two years of falling Montana tax bills.

The Legislature does not meet in regular session until January 2027, so what was enacted in the spring of 2025 is what governs the 2026 return. No special session was called to undo the federal changes, and no tax question was on the November 3, 2026 ballot. The surprises for most filers will be pleasant ones.

The rate cut: House Bill 337

House Bill 337, signed April 28, 2025 (verify), is the enacted law. Its notice from the Montana Department of Revenue, dated November 14, 2025, sets the figures. Montana has two brackets, and both the rate and the line between them move for 2026 and again for 2027. The brackets apply to Montana ordinary income, which is Montana taxable income without net long-term capital gains. Estates, trusts and married people filing separately use the single column.

The 2025 figures are from the Department’s 2025 tax tables; the 2026 and 2027 figures are from its HB 337 notice. The Department has said it will adjust withholding tables to match. Whether the brackets are indexed for inflation after 2027 is not stated on the Department’s page (verify).

The widening of the 4.7% bracket matters more than the rate cut for most households. A married couple with $80,000 of Montana taxable income paid 5.9% on $37,800 of it in 2025. In 2026 every dollar of that $80,000 is taxed at 4.7%. The reduction in the top rate, by a quarter of a point, helps the people above the line; the bracket change helps everyone from the middle up.

Long-term capital gains keep their separate rates, 3% and 4.1%, and the 3% band widens with the ordinary bracket. Net long-term gains are taxed at 3% on the amount that fits under the bracket line after ordinary income is counted, and at 4.1% on the rest. For a joint return in 2026 the room under the line is $95,000 less Montana ordinary income; in 2025 it was $42,200 less ordinary income. Short-term gains, interest and dividends are ordinary income and get the ordinary rates.

The federal law arrived automatically

Montana defines Montana taxable income from federal taxable income as the Internal Revenue Code stands today, and has since the 2024 simplification. Line 1 of Form 2 is federal adjusted gross income; line 2 is the total of the federal standard or itemized deduction and the new Schedule 1-A deductions (on the 2025 forms, Form 1040 lines 12e and 13b). The 2025 Form 2 instructions say the Schedule 1-A deductions for qualified tips, overtime, passenger-vehicle loan interest and seniors “are included in the calculation of Montana taxable income.” So when Congress created those deductions in July 2025, Montana adopted them the same day, with no bill and no vote. The one piece of the federal computation Montana refuses is the qualified business income deduction, which has been excluded since 2024 and still is.

The federal dollar limits are federal figures and are marked for verification against the 2026 federal forms. The Montana treatment comes from the 2025 Form 2 instructions and the Department’s 2026 estimated-tax publication, which repeats the $40,000 SALT cap.

What this means in dollars is simple. A Montana filer in the 4.7% bracket saves 4.7 cents of Montana tax for every dollar of federal deduction, and 5.65 cents above the line. A server with $8,000 of qualified tips saves $376 of Montana tax in 2026 that she paid in 2025. A couple both 65 or older with the full $12,000 federal senior deduction saves $564 at 4.7%, and keeps Montana’s own age-65 subtraction besides. A worker with $6,000 of qualifying overtime saves $282.

The earned income credit doubles

For tax years beginning after December 31, 2025, the Montana earned income credit is 20% of the federal credit. For 2025 it was 10%. The credit is refundable: if it is larger than the Montana tax, the Department pays the difference. It is figured on Worksheet A inside Form 2. A Montana resident who claims the federal credit qualifies; nonresidents do not, and part-year residents prorate. A single parent with two children and a federal credit of $7,000 gets $1,400 from Montana in 2026 against $700 under the 2025 rule. The Department’s own EITC web page still described the credit as 10% when this was written; the HB 337 notice and the 2026 estimated-tax publication both give 20%.

Montana still has no child tax credit and no child and dependent care credit. The 529 subtraction rose to $4,600 per taxpayer and $9,200 on a joint return for 2026, from $4,500 and $9,000 for 2025, and a new $3,000 subtraction for qualified volunteer firefighters and volunteer emergency care providers begins in 2026 under House Bill 129. The 529 figure is marked for verification because the Department’s 529 page gives $4,600 while its 2026 estimated-tax publication still shows $4,500; the 2026 Form 2 instructions will settle it.

Property tax: the rebate is gone, the homestead rate replaces it

The $400 rebate checks of 2025 were a one-time program. What takes their place for 2026 is a permanent homestead tax rate for a principal residence lived in at least seven months of the year, and for long-term rentals: 0.76% of market value on the first $378,000, 0.90% from $378,001 to $756,000, 1.10% from $756,001 to $1,511,999, and 1.90% above $1,512,000. Second homes, short-term rentals and vacant residential lots pay a flat 1.90%. Homeowners who received the 2025 rebate and still live in the same home were enrolled automatically; everyone else had to apply by March 1, 2026.

Anyone who qualified and missed the rate can request the 2026 Property Tax Refund through the Department’s TransAction Portal from January 1 to May 31, 2027. The refund is the difference between the 1.90% rate and the homestead rate for the one year, paid by check, and an approved refund enrolls the home for 2027 automatically. The Department will not process a request until the county confirms 2026 taxes and any prior-year balances are paid in full. Enrollment for the 2027 rate, for anyone not already in, closes March 1, 2027.

This is a property tax matter, not an income tax one, but it is the change most Montana homeowners will notice in 2026, and it is the Department of Revenue that runs it. The income-tax-side relief for seniors, the Elderly Homeowner/Renter Credit, continues: refundable, up to $1,150, for people 62 or older with household income under $45,000.

The smaller changes

• Interest on underpayments and late payments is 7% for 2026, down from 8% in 2025. The 2027 rate is to come. The late-payment penalty stays at 0.5% a month, up to 12%.
• Age-65 subtraction. $5,660 per person for 2025. The Department’s 2026 estimated-tax publication repeats $5,660 for 2026; the indexed figure will be confirmed in the 2026 Form 2 instructions (verify).
• Form 2EZ is discontinued. Everyone files Form 2. Worksheets now sit inside Form 2 next to the schedules they feed.
• Form MW-4 replaces Form MT-R for North Dakota residents claiming the reciprocity exemption from Montana withholding. Current employees need a new MW-4 only if their situation changes. The federal W-4 is not accepted for Montana withholding.
• Mixed Residency and Nonresident Military Spouse boxes were added to Form 2 for 2025 and carry into 2026.
• The state income tax add-back for itemizers moved to Schedule I line 4, figured on Worksheet B.
• Pass-through entity tax and mineral royalty withholding move to 5.65%, the new top rate.

What to expect on the 2026 return

• Wage earners: less Montana tax on the same wages. The 4.7% bracket now covers most middle incomes in full, and withholding tables were adjusted, so the change may already be in the paychecks rather than the refund.
• Tipped and hourly workers: the federal tips and overtime deductions reduce Montana tax too. Nothing to add back.
• Retirees: the $6,000 federal senior deduction cuts Montana tax, and Montana’s age-65 subtraction still applies on top. Social Security, pensions and IRA withdrawals remain taxable. See Montana for retirees.
• Families: a Montana EITC twice last year’s size, and a slightly larger 529 subtraction. See Credits and breaks for Montana families.
• Investors: the 3% capital gains band is more than twice as wide.
• Homeowners: no rebate check this year. Confirm the homestead rate appears on the 2026 bill; if not, the refund window opens January 1, 2027.
• Business owners, landlords and farmers: 100% bonus depreciation flows into Montana income with no add-back found; the QBI deduction still does not.