MT
Does Montana tax tips and overtime?
The federal deduction and the Montana deduction are separate questions. Here is where Montana actually lands, and why.
How Montana builds its tax base
Montana starts from your federal taxable income, a figure these deductions have already reduced. That means they flow through automatically, with no state legislation required — unless the state deliberately decouples.
Tips in Montana
DeductibleSB 399 (2021, Ch. 503) moved Montana's individual income tax base to federal taxable income effective TY2024; the 2025 Form 2 computes line 3 as federal AGI (line 1) minus Form 1040 lines 12e and 13b (line 2), and the instructions state that "The additional deductions found on Form 1040, Schedule 1-A for qualified tips, qualified overtime compensation, qualified passenger vehicle loan interest, and the enhanced deduction for seniors, are included in the calculation of Montana taxable income." Montana enacted no decoupling — its 2025 session adjourned before OBBBA and the legislature is biennial (next regular session 2027). Verified: no tips add-back appears on Schedule I.
Source: Montana Department of Revenue, 2025 Form 2 Individual Income Tax Return Instructions (pp. 6-7, Page 1 line instructions) · last reviewed
Overtime in Montana
DeductibleSame mechanism and same sentence in the 2025 Form 2 instructions, which names "qualified overtime compensation" among the Schedule 1-A deductions included in Montana taxable income. Note the one Montana carve-out from federal taxable income is the QBI deduction ("Do not include the federal qualified business income deduction"); §224 and §225 are not carved out, and Schedule I contains no overtime add-back.
Source: Montana Department of Revenue, 2025 Form 2 Individual Income Tax Return Instructions (line 2 / Schedule 1-A guidance; Schedule I additions, Part I) · last reviewed
Whatever your state does, your payroll taxes do not change
Both deductions reduce income tax only. Social Security and Medicare are still charged on the same wages, in every state.