Montana Additions to Income
The following are additions to income that may apply to you. Please review the following information and enter the necessary information to your return.
Interest and Mutual Fund Dividends from Other States’ State, County, or Municipal Bonds
Enter the interest and dividend income that you received from bonds and obligations of another state, territory or political subdivision of another state (county, municipality, district, etc.)
Premiums for Insure Montana Credit
If you were the owner of a business that received a tax credit from the Insure Montana Small Business Health Insurance program, you are not allowed a deduction for the premiums used to calculate the credit. Because the credit cannot exceed 50% of the premiums, multiply the amount of credit you are claiming by two and enter the result.
Federal Tax Refunds/Overpayments Worksheet
If you received a 2010 federal income tax refund in 2011 and you claimed federal income taxes paid as an itemized deduction on your 2010 Montana tax return, you may need to report a portion or all of your federal refund as income on your 2011 Montana tax return. This is called the Tax Benefit Rule.
To the extent that the federal tax deduction that you claimed on your 2010 Montana income tax return reduced the amount of your 2010 Montana income tax liability, any subsequent refunds from this deduction are considered income in the year that you received it. Enter the information requested according to what was filed on the prior year return.
You will need to complete Worksheet II, Tax Benefit Rule for Federal Income Tax Refund, found on page 44 of the Montana Form 2 Instructions to determine whether your federal income tax refund is taxable in 2011, unless one of the following scenarios applies to you:
- If you claimed the Montana standard deduction when you filed your 2010 Montana return (instead of itemized deductions) in 2011, none of your federal income tax refund is taxable and you do not need to complete Worksheet II.
- Your deduction for federal taxes paid in 2010 may have been limited on your Montana tax return to $5,000 ($10,000 if filing a joint return). Because of this limitation, your refund may or may not be taxable. A simple way to check this is to subtract the refund that you received in 2011 from the total federal income taxes paid in 2010 (Form 2,Schedule III, lines 7a through 7d or Form 2M, Schedule I, lines 7a through 7d). If the result is more than $5,000 ($10,000 if you filed a joint return), none of the refund is taxable and you do not need to complete Worksheet II. If the result is less than $5,000 ($10,000 if you filed a joint return), please complete Worksheet II to determine whether your federal income tax refund is taxable.
If you and your spouse filed your federal tax return jointly and are now filing your Montana tax return separately,you will each need to complete a separate tax benefit rule worksheet. Prorate your federal income tax refund between you and your spouse by applying the ratio of your 2010 federal income tax deduction to the total federal tax deducted.