Among several changes to Montana’s income tax system that took effect at the beginning of the year is a provision that makes income from tips subject to state taxes.
The shift aligns Montana with the federal tax system, in which tips have long been taxed alongside salaries and wages. It also means that many service-sector workers will likely have their state income tax obligation increased by hundreds of dollars a year.
Montana’s top-bracket tax rate, which now applies to annual taxable incomes over $20,500, is 5.9%. That means that many service sector workers will owe an additional $5.90 in state taxes for every $100 of tip income they report on their tax filings.
“It’s just not fair — it makes no sense for these individuals to not have to pay their fair share of taxes on just a particular type of income that they get,” [Sen. Greg Hertz, R-Polson] said.
Democrats pushed to keep the exemption, saying it is unfair to increase taxes on workers who are in many cases scraping to get by.
“We’re talking about our lowest-income Montanans here,” said then-Senate Minority Leader Jill Cohenour, D-East Helena.
Montana Free Press: Do you earn tips? Montana now taxes them.