Exempt a portion of interest earnings from individual income tax
HB 132 revises Montana individual income tax law to create a new subtraction from federal taxable income for a portion of certain interest income reported on IRS Form 1099. The bill limits the deduction to the lesser of $2,500 for single filers, heads of household, and married individuals filing separately, or $5,000 for joint filers, and the amount of qualifying interest received. The interest subtraction is added to the list of Montana income tax subtractions in 15-30-2120, MCA, and is scheduled to apply to tax years beginning after December 31, 2025.
The bill also makes conforming changes to the state’s income tax subtraction framework, which already includes deductions and exclusions for items such as military pay, retirement income, savings account withdrawals, education savings, and the age-65 subtraction. By adding this interest-income deduction, the bill would reduce taxable income for qualifying taxpayers and therefore lower state income tax liability for those with eligible interest earnings. The bill’s effective date is January 1, 2026, and it includes a delayed applicability date for tax years beginning after December 31, 2025.
HB 132 would amend 15-30-2120, MCA, by adding a new subtraction from federal taxable income for a portion of interest income reported on Form 1099, thereby reducing Montana taxable income for eligible individuals. The change would affect individual income taxpayers who receive qualifying interest earnings, with the deduction capped by filing status and tied to IRS reporting requirements. The bill would not alter corporate tax law, but it would expand the set of personal income tax preferences already embedded in Montana law.
The available voting history suggests the bill was not controversial at the committee stage, at least procedurally: the House Taxation committee voted 21-0 to table the bill. No committee transcript is available, so there is no recorded debate to indicate support or opposition on the merits. The final status, however, shows the bill died in process, indicating it did not advance despite the unanimous committee vote on the tabling motion.
The main policy issue appears to be whether Montana should exempt a portion of interest earnings from individual income tax, which would reduce revenue and provide a targeted tax benefit to savers and investors. Because the bill was tabled unanimously, the record does not show specific dissenting arguments, but the likely points of concern would be revenue loss, the fairness of creating another income-tax subtraction, and whether the benefit would primarily aid higher-income taxpayers with more interest income. Supporters would likely frame it as tax relief for households earning modest interest income and as a way to keep more savings income in Montana.