Questions & Answers

What if I paid taxes to another state besides Montana?

If you paid income tax to another state on income that is also taxable to Montana, you may be entitled to a credit against your Montana income tax liability for these income taxes paid to another state.

You can't claim this credit if the other state or country in which you have filed an income tax return has allowed you a credit against the taxes that they have imposed on your net income because you are also subject to tax on the same income in Montana.

Owners of a pass-through entity (S Corporation or Partnership): If you are an owner of a pass-through entity and your entity pays an income tax to another state (including composite tax paid on your behalf) or country, you can claim a credit for your share of these income taxes paid by the entity.

The income tax paid by the S corporation or partnership must be measured by and imposed on net income. This credit also applies to excise taxes or franchise taxes that are paid by the S corporation or partnership as long as they are imposed on and measured by net income. However, you are not allowed to use other taxes paid by your S corporation or partnership such as, but not limited to, franchise or license taxes or fees that are not imposed on or measured by net income, gross receipt taxes, or gross sales taxes.

When you claim this credit for the taxes paid by your S corporation or partnership, in determining your Montana adjusted gross income, you have to add back your share of the S corporation's or partnership's federal tax deduction that is included in your total pass-through entity income reported on Schedule 1, to your federal adjusted gross income as an addition from your Montana Schedule K-1. This is required whether or not your S corporation or partnership separately or non-separately stated the income tax deduction on your federal Schedule K-1.

Taxes Paid to Another Country: Individuals are not entitled to a Montana tax credit for taxes paid to a foreign country when they claim a federal foreign tax credit the same year. You can claim a credit for foreign taxes paid to another country if you did not claim the federal Foreign Tax Credit, if you do not take the foreign taxes as a deduction on your Itemized Deductions Schedule, and if the foreign country does allow a credit for taxes paid to Montana.

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