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Tax Year 2026Updated July 13, 2026

Does Montana Tax Tips in 2026?

No - Montana does not tax tips that qualify for the federal OBBBA deduction in 2026. Montana computes its income tax starting from federal taxable income, so the federal tips deduction (IRC §224, up to $25,000) automatically reduces your Montana tax base. Because Montana has a graduated rate structure with a top rate of 5.65%, tip workers in Montana can save more per deducted dollar than in most flat-rate conforming states.

How Montana's Tips Tax Treatment Works

Montana conforms to the OBBBA tips deduction through structural flow-through. The state starts its income tax computation from federal taxable income - the figure from federal Form 1040, line 15. The OBBBA tips deduction is an above-the-line deduction that reduces federal taxable income before Montana’s calculation begins. No separate Montana legislation, guidance, or add-back is involved; the deduction is already built into the state’s starting point.

What makes Montana distinctive among conforming states is its graduated rate structure. Montana applies two tax brackets: 4.7% on the first $21,600 of taxable income and 5.65% on income above that threshold (single filer, TY2026, per HB 337). For tip workers whose taxable income falls in the upper bracket, each dollar of tips deducted saves 5.65 cents in Montana tax - meaningfully more than flat-rate states like Colorado (4.40%) or Iowa (4.7%).

Montana also has its own standard deduction ($5,540 for single filers) and personal exemption ($3,000 for single filers), which are applied after the federal taxable income starting point. These state adjustments do not affect the OBBBA deduction - the tips deduction is already embedded in the federal taxable income figure that Montana uses. The state adjustments further reduce Montana taxable income but are independent of the OBBBA benefit.

Federal Tips Deduction Quick Reference

DetailValue
IRC Section§224 (OBBBA)
Maximum deduction$25,000 tips
Deduction typeAbove-the-line (Schedule 1-A)
FICA still applies?Yes (Social Security 6.2% + Medicare 1.45%)
MFS eligible?No (MFJ or Single/HoH only)
Effective datesJan 1, 2025 – Dec 31, 2028
Montana treatmentConforms

Worked Examples Comparing Federal and Montana Treatment

Example 1: Ski resort server earning $15,000 in tips (single filer, 12% federal bracket, income above $21,600 MT threshold)

Federal return:
Qualified tip income: $15,000
Tips deduction claimed: $15,000 (capped at $25,000)
Estimated federal tax savings: $1,800.00

Montana return:
State tax savings from deduction: $847.50
Montana’s graduated rate structure means the savings depend on the worker’s total taxable income. If the worker’s Montana taxable income is above $21,600, the deduction saves at the 5.65% top rate. The $15,000 deduction flows through from federal taxable income automatically.

Example 2: Glacier Park hospitality worker earning $25,000 in tips (single filer, 22% federal bracket, income above $21,600 MT threshold)

Federal return:
Qualified tip income: $25,000
Tips deduction claimed: $25,000 (capped at $25,000)
Estimated federal tax savings: $5,500.00

Montana return:
State tax savings from deduction: $1,412.50
This worker claims the full $25,000 federal cap. At the 5.65% Montana top rate, the state savings is $1412.50 - one of the highest state-level savings among conforming states because Montana’s top rate is higher than most flat-tax states.

Montana-Specific Rules and Considerations

Higher savings at the top rate: Montana’s 5.65% top rate (per HB 337, effective TY2026) means the tips deduction provides greater state-level savings per dollar than most conforming flat-rate states. A worker claiming the full $25,000 deduction at the top rate saves $1412.50 in Montana state tax - a significant benefit on top of federal savings.

Tourism economy context: Montana’s economy relies heavily on tourism, with major destinations like Glacier National Park, Yellowstone, and ski resorts across the state. Workers in hospitality, dining, and recreation - many of whom earn substantial tip income - are among the primary beneficiaries of OBBBA conformity in Montana. The combination of no sales tax and the tips income deduction makes Montana particularly favorable for tipped workers.

No sales tax advantage: Montana is one of five states with no general sales tax. Tip workers in Montana benefit not only from the income tax deduction but also from the absence of sales tax on their day-to-day purchases. A 3% resort tax applies in certain designated tourist communities but does not apply statewide.

Rate reduction ahead: HB 337 (2023 MT Legislature) scheduled a further rate reduction to 5.4% for the top bracket beginning TY2027. While this will slightly reduce the per-dollar state savings from the tips deduction, Montana will remain one of the higher-rate conforming states.

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Frequently Asked Questions

Does Montana conform to the OBBBA no-tax-on-tips provision?
Yes. Montana starts its income tax calculation from federal taxable income. The OBBBA tips deduction (IRC §224) reduces federal taxable income, and that reduced figure flows directly into Montana’s tax base. This structural flow-through mechanism means Montana tip workers receive the deduction benefit automatically - no separate Montana legislation was needed.
Do I still pay FICA on my tips in Montana?
Yes. The OBBBA tips deduction only applies to federal and state income taxes. Social Security tax (6.2%) and Medicare tax (1.45%) still apply to all reported tip income. Montana does not impose a separate state payroll program on wages.
How does Montana's graduated rate affect tips deduction savings?
Montana has a two-bracket graduated income tax: 4.7% on the first $21,600 of taxable income and 5.65% on income above that threshold (single filer, TY2026). The tips deduction reduces your Montana taxable income from the top down, so if your income is above $21,600, each dollar of tips deducted saves 5.65 cents in Montana tax. If the deduction pushes your taxable income below the threshold, some savings occur at the 4.7% rate.
Is there a cap on the Montana tips deduction?
The cap comes from the federal provision: $25,000 per year (IRC §224). Montana does not impose a separate state cap. Whatever reduces your federal taxable income also reduces your Montana taxable income dollar-for-dollar.
Does Montana have a sales tax that affects tip workers?
No. Montana is one of five states with no general sales tax. A 3% resort tax applies in certain designated tourist areas (like Big Sky and West Yellowstone), but this is not a statewide sales tax. Tip workers in Montana benefit from no sales tax burden on their purchases in most of the state.
Do I need to file a special Montana form for the tips deduction?
No. Montana starts from federal taxable income, so the tips deduction is already embedded in the Montana tax base once you claim it on your federal return (Schedule 1-A). There is no separate Montana form, schedule, or election required.
Can Married Filing Separately filers claim the tips deduction in Montana?
No. The federal OBBBA tips deduction (IRC §224) excludes Married Filing Separately filers. Since Montana’s benefit flows through the federal deduction, MFS filers cannot benefit at either the federal or Montana level.