Questions & Answers

What if I paid taxes to another state besides Montana?

Individuals: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.

Shareholders of an S corporation or partners in a Partnership: If you are a shareholder of an S corporation or a partner in a partnership and your S corporation or partnership 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.

In order for you to claim this credit, the income tax paid by the S corporation or partnership has to 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 on Schedule 1, line 17, to your federal adjusted gross income on the Additions Schedule, line 12. 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 unless they have unused federal foreign tax credit that is not eligible to be carried back or carried forward to another tax year under IRC 904(c). As a result, this credit can be claimed only when specific circumstances occur, e.g., when that year no foreign tax credit is claimed for federal tax purposes. You cannot claim this credit if you deduct the foreign tax on Schedule III, line 12 or anywhere else in determining Montana taxable income.

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