From 1ad2436b46d2a7b11729846fcdcca3bcfbce1b3f Mon Sep 17 00:00:00 2001
From: PavelMakarchuk <pavel.ma99@gmail.com>
Date: Thu, 22 Oct 2026 16:19:18 -0400
Subject: [PATCH 1/3] Add Montana's 2021-2023 partial pension, annuity, and IRA
 income exemption

MCA 15-30-2110(2)(c) exempts the first $4,400 (2021), $4,640 (2022) or
$5,060 (2023) of each taxpayer's pension, annuity, and IRA income, reduced
by $2 for each $1 of federal AGI above $36,700, $38,660 or $42,140. The
Form 2 worksheet reduces each spouse's amount by their own federal AGI on
a separate return, and the spouses' combined amount once by the joint
federal AGI on a joint return, so the exemption is added in mt_agi_indiv
and mt_agi_joint (and the two Taxable Social Security schedules) rather
than in the subtractions list. Repealed from 2024.

Closes #10388

Co-Authored-By: Claude Opus 5.5 <noreply@anthropic.com>
---
 changelog.d/mt-pension-exemption.added.md     |  1 +
 .../tax/income/subtractions/pension/cap.yaml  | 18 ++++
 .../subtractions/pension/in_effect.yaml       | 13 +++
 .../subtractions/pension/phase_out/rate.yaml  | 12 +++
 .../pension/phase_out/threshold.yaml          | 18 ++++
 .../income/subtractions/pension/sources.yaml  | 17 ++++
 .../subtractions/pension/integration.yaml     | 22 +++++
 ...mt_pension_exemption_before_phase_out.yaml | 43 +++++++++
 .../pension/mt_pension_exemption_indiv.yaml   | 63 +++++++++++++
 .../pension/mt_pension_exemption_joint.yaml   | 92 +++++++++++++++++++
 .../states/mt/tax/income/base/mt_agi_indiv.py |  7 +-
 .../states/mt/tax/income/base/mt_agi_joint.py |  3 +
 .../income/base/mt_taxable_social_security.py |  6 +-
 .../base/mt_taxable_social_security_joint.py  |  6 +-
 .../mt_pension_exemption_before_phase_out.py  | 24 +++++
 .../pension/mt_pension_exemption_indiv.py     | 28 ++++++
 .../pension/mt_pension_exemption_joint.py     | 27 ++++++
 17 files changed, 397 insertions(+), 3 deletions(-)
 create mode 100644 changelog.d/mt-pension-exemption.added.md
 create mode 100644 policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/cap.yaml
 create mode 100644 policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
 create mode 100644 policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/rate.yaml
 create mode 100644 policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/threshold.yaml
 create mode 100644 policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
 create mode 100644 policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
 create mode 100644 policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
 create mode 100644 policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.yaml
 create mode 100644 policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
 create mode 100644 policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.py
 create mode 100644 policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.py
 create mode 100644 policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.py

diff --git a/changelog.d/mt-pension-exemption.added.md b/changelog.d/mt-pension-exemption.added.md
new file mode 100644
index 00000000000..661085b67a7
--- /dev/null
+++ b/changelog.d/mt-pension-exemption.added.md
@@ -0,0 +1 @@
+Add Montana's 2021–2023 partial pension, annuity, and IRA income exemption.
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/cap.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/cap.yaml
new file mode 100644
index 00000000000..20ba3a7535e
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/cap.yaml
@@ -0,0 +1,18 @@
+description: Montana caps the partial pension, annuity, and IRA income exemption at this amount for each taxpayer.
+values:
+  2021-01-01: 4_400
+  2022-01-01: 4_640
+  2023-01-01: 5_060
+metadata:
+  unit: currency-USD
+  period: year
+  label: Montana partial pension, annuity, and IRA income exemption cap
+  reference:
+    - title: Montana Code Annotated 2021, 15-30-2110(2)(c)(i) and (17)
+      href: https://web.archive.org/web/20220630022434/https://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
+    - title: 2021 Montana Form 2 instructions, line 35, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2021_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=30
+    - title: 2022 Montana Form 2 instructions, line 34, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2022_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=31
+    - title: 2023 Montana Form 2 instructions, line 34, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
new file mode 100644
index 00000000000..06e01c03bf8
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
@@ -0,0 +1,13 @@
+description: Montana provides the partial pension, annuity, and IRA income exemption if this is true.
+values:
+  2021-01-01: true
+  2024-01-01: false
+metadata:
+  unit: bool
+  period: year
+  label: Montana partial pension, annuity, and IRA income exemption in effect
+  reference:
+    - title: Montana Code Annotated 2021, 15-30-2110(2)(c), repealed effective January 1, 2024 (secs. 65, 70(1), Ch. 503, L. 2021)
+      href: https://web.archive.org/web/20220630022434/https://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
+    - title: 2023 Montana Form 2 instructions, line 34, "Beginning in Tax Year 2024, this deduction is repealed"
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=35
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/rate.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/rate.yaml
new file mode 100644
index 00000000000..0b8a8f9c49d
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/rate.yaml
@@ -0,0 +1,12 @@
+description: Montana reduces the partial pension, annuity, and IRA income exemption by this amount for each dollar of federal adjusted gross income above the threshold.
+values:
+  2021-01-01: 2
+metadata:
+  unit: /1
+  period: year
+  label: Montana partial pension, annuity, and IRA income exemption phase-out rate
+  reference:
+    - title: Montana Code Annotated 2021, 15-30-2110(2)(c)(ii)
+      href: https://web.archive.org/web/20220630022434/https://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
+    - title: 2023 Montana Form 2, Partial Pension, Annuity, and IRA Income Exemption Worksheet, line 6
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/threshold.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/threshold.yaml
new file mode 100644
index 00000000000..83cb0018d95
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/phase_out/threshold.yaml
@@ -0,0 +1,18 @@
+description: Montana reduces the partial pension, annuity, and IRA income exemption when federal adjusted gross income exceeds this amount.
+values:
+  2021-01-01: 36_700
+  2022-01-01: 38_660
+  2023-01-01: 42_140
+metadata:
+  unit: currency-USD
+  period: year
+  label: Montana partial pension, annuity, and IRA income exemption phase-out threshold
+  reference:
+    - title: Montana Code Annotated 2021, 15-30-2110(2)(c)(ii) and (17)
+      href: https://web.archive.org/web/20220630022434/https://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
+    - title: 2021 Montana Form 2 instructions, line 35, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2021_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=30
+    - title: 2022 Montana Form 2 instructions, line 34, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2022_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=31
+    - title: 2023 Montana Form 2 instructions, line 34, Partial Pension, Annuity, and IRA Income Exemption
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
new file mode 100644
index 00000000000..ce05022ada3
--- /dev/null
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
@@ -0,0 +1,17 @@
+description: Montana counts these sources as pension, annuity, and IRA income for the partial pension, annuity, and IRA income exemption.
+values:
+  2021-01-01:
+    # Form 2, page 1, lines 4b (IRA distributions) and 5b (pensions and
+    # annuities). Premature distributions do not qualify (MCA 15-30-2101(25)(d))
+    # but are not separately modeled.
+    - taxable_pension_income
+    - taxable_retirement_distributions
+metadata:
+  unit: list
+  period: year
+  label: Montana partial pension, annuity, and IRA income exemption sources
+  reference:
+    - title: Montana Code Annotated 2021, 15-30-2101(25), "Pension and annuity income"
+      href: https://web.archive.org/web/20220127192023/http://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0010/0150-0300-0210-0010.html
+    - title: 2023 Montana Form 2, Partial Pension, Annuity, and IRA Income Exemption Worksheet, line 2
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
new file mode 100644
index 00000000000..d05f0054b13
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
@@ -0,0 +1,22 @@
+# Single filer, 20,000 of taxable pension income, no other income, 2023
+# Form 2. Montana AGI: 20,000 - 5,060 = 14,940. Standard deduction: 20% of
+# 14,940 = 2,988. Exemptions: 2,960 each.
+- name: Single filer aged 60 with a pension
+  period: 2023
+  input:
+    age: 60
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # Taxable income 14,940 - 2,988 - 2,960 = 8,992; tax 8,992 x 3% - 99.
+    mt_income_tax: 170.76
+
+- name: Single filer aged 70 with a pension
+  period: 2023
+  input:
+    age: 70
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # Taxable income 14,940 - 2,988 - 2 x 2,960 = 6,032; tax 6,032 x 2% - 36.
+    mt_income_tax: 84.64
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
new file mode 100644
index 00000000000..039457c1476
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
@@ -0,0 +1,43 @@
+- name: Pension above the 2023 cap is capped at 5,060
+  period: 2023
+  input:
+    taxable_private_pension_income: 25_000
+    state_code: MT
+  output:
+    mt_pension_exemption_before_phase_out: 5_060
+
+- name: Pension and IRA income below the 2023 cap are exempt in full
+  period: 2023
+  input:
+    taxable_private_pension_income: 1_000
+    taxable_ira_distributions: 1_300
+    state_code: MT
+  output:
+    mt_pension_exemption_before_phase_out: 2_300
+
+- name: A dependent's pension does not qualify
+  period: 2023
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+      dependent:
+        is_tax_unit_dependent: true
+        taxable_private_pension_income: 3_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+    households:
+      household:
+        members: [head, dependent]
+        state_code: MT
+  output:
+    mt_pension_exemption_before_phase_out: [0, 0]
+
+- name: The exemption is repealed from 2024
+  period: 2024
+  input:
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    mt_pension_exemption_before_phase_out: 0
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.yaml
new file mode 100644
index 00000000000..bd52bb832cc
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.yaml
@@ -0,0 +1,63 @@
+# Expected values are the examples in the Form 2 instructions: 2021 line 35
+# (PDF page 30), 2022 line 34 (PDF pages 31-32), 2023 line 34 (PDF pages 34-35).
+- name: 2021 instructions example, federal AGI of 37,400
+  period: 2021
+  input:
+    employment_income: 17_400
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # 4,400 - (700 x 2) = 3,000
+    mt_pension_exemption_indiv: 3_000
+
+- name: 2022 instructions example, federal AGI of 39,400
+  period: 2022
+  input:
+    employment_income: 19_400
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # 4,640 - (740 x 2) = 3,160
+    mt_pension_exemption_indiv: 3_160
+
+- name: 2023 instructions example, federal AGI of 43,000
+  period: 2023
+  input:
+    employment_income: 23_000
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # 5,060 - (860 x 2) = 3,340
+    mt_pension_exemption_indiv: 3_340
+
+- name: No exemption at the 2023 federal AGI of 44,670
+  period: 2023
+  input:
+    employment_income: 24_670
+    taxable_private_pension_income: 20_000
+    state_code: MT
+  output:
+    # 5,060 - (2,530 x 2) = 0
+    mt_pension_exemption_indiv: 0
+
+- name: On separate returns each spouse uses their own federal AGI
+  period: 2023
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        employment_income: 40_000
+      spouse:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 20_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MT
+  output:
+    # The spouse's separately stated federal AGI, 20,000, is below 42,140.
+    mt_pension_exemption_indiv: [0, 5_060]
+    mt_agi_indiv: [40_000, 14_940]
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
new file mode 100644
index 00000000000..f82dce64326
--- /dev/null
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
@@ -0,0 +1,92 @@
+# Jim and Pam examples in the Form 2 instructions: 2021 line 35 (PDF page 30),
+# 2022 line 34 (PDF page 31), 2023 line 34 (PDF page 34). Federal AGI is
+# 35,400; Jim has a 25,000 and Pam a 2,300 retirement distribution.
+- name: 2021 instructions example, Jim and Pam
+  period: 2021
+  input:
+    people:
+      jim:
+        is_tax_unit_head: true
+        employment_income: 8_100
+        taxable_private_pension_income: 25_000
+      pam:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 2_300
+    tax_units:
+      tax_unit:
+        members: [jim, pam]
+    households:
+      household:
+        members: [jim, pam]
+        state_code: MT
+  output:
+    # 4,400 + 2,300
+    mt_pension_exemption_joint: 6_700
+
+- name: 2022 instructions example, Jim and Pam
+  period: 2022
+  input:
+    people:
+      jim:
+        is_tax_unit_head: true
+        employment_income: 8_100
+        taxable_private_pension_income: 25_000
+      pam:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 2_300
+    tax_units:
+      tax_unit:
+        members: [jim, pam]
+    households:
+      household:
+        members: [jim, pam]
+        state_code: MT
+  output:
+    # 4,640 + 2,300
+    mt_pension_exemption_joint: 6_940
+
+- name: 2023 instructions example, Jim and Pam
+  period: 2023
+  input:
+    people:
+      jim:
+        is_tax_unit_head: true
+        employment_income: 8_100
+        taxable_private_pension_income: 25_000
+      pam:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 2_300
+    tax_units:
+      tax_unit:
+        members: [jim, pam]
+    households:
+      household:
+        members: [jim, pam]
+        state_code: MT
+  output:
+    # 5,060 + 2,300
+    mt_pension_exemption_joint: 7_360
+    # 35,400 - 7,360
+    mt_agi_joint: 28_040
+
+- name: A joint return reduces the exemption by the joint federal AGI
+  period: 2023
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        employment_income: 40_000
+      spouse:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 20_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MT
+  output:
+    # Worksheet lines 3b-7: 5,060 - 2 x (60,000 - 42,140) is below zero.
+    mt_pension_exemption_joint: 0
+    mt_agi_joint: 60_000
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_indiv.py b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_indiv.py
index ff6e632e58b..043651bfe56 100644
--- a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_indiv.py
+++ b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_indiv.py
@@ -16,7 +16,12 @@ def formula(person, period, parameters):
             "mt_loss_ald_reallocation", period
         )
         additions = person("mt_additions", period)
-        subtractions = person("mt_subtractions", period)
+        # The partial pension, annuity, and IRA income exemption is not in the
+        # subtractions list: on a separate return each spouse reduces it by
+        # their own federal AGI, and a joint return reduces it once.
+        subtractions = person("mt_subtractions", period) + person(
+            "mt_pension_exemption_indiv", period
+        )
         reduced_agi = max_(agi + additions - subtractions, 0)
         # Montana taxable social security benefits can be either addition or subtraction
         # if mt_taxable_social security - taxable_social_security > 0, then addition, else subtraction
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_joint.py b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_joint.py
index 3a081d76218..7dcb593c319 100644
--- a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_joint.py
+++ b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_agi_joint.py
@@ -23,6 +23,9 @@ def formula(tax_unit, period, parameters):
         on_return = person("is_tax_unit_head_or_spouse", period)
         additions = tax_unit.sum(person("mt_additions", period) * on_return)
         subtractions = tax_unit.sum(person("mt_subtractions", period) * on_return)
+        # A joint return claims the partial pension, annuity, and IRA income
+        # exemption once, reduced by the joint federal AGI.
+        subtractions += tax_unit("mt_pension_exemption_joint", period)
 
         # Apply pooled subtractions to pooled income
         reduced_agi = max_(agi + additions - subtractions, 0)
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security.py b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security.py
index 053c2a87ab4..0b0c6173385 100644
--- a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security.py
+++ b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security.py
@@ -37,7 +37,11 @@ def formula(person, period, parameters):
             "student_loan_interest_ald", period
         )
         # Line 8 - Montana subtractions + ald
-        subtractions = person("mt_subtractions", period)
+        # Subtractions Schedule line 35 includes the partial pension, annuity,
+        # and IRA income exemption (line 34).
+        subtractions = person("mt_subtractions", period) + person(
+            "mt_pension_exemption_indiv", period
+        )
         increased_subtractions = subtractions + ald_less_student_loan
         # line 9: line 6 -line 8, if line 8 >= line 6, return 0
         income_reduced_by_subtractions = max_(
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security_joint.py b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security_joint.py
index cebfa573b8f..54029434dd0 100644
--- a/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security_joint.py
+++ b/policyengine_us/variables/gov/states/mt/tax/income/base/mt_taxable_social_security_joint.py
@@ -38,7 +38,11 @@ def formula(tax_unit, period, parameters):
             tax_unit, period, ["mt_applicable_ald_deductions"]
         ) - add(tax_unit, period, ["student_loan_interest_ald"])
         # line 8: Montana subtractions + ald
-        subtractions = add(tax_unit, period, ["mt_subtractions"])
+        # Subtractions Schedule line 35 includes the partial pension, annuity,
+        # and IRA income exemption (line 34).
+        subtractions = add(tax_unit, period, ["mt_subtractions"]) + tax_unit(
+            "mt_pension_exemption_joint", period
+        )
         increased_subtractions = subtractions + ald_less_student_loan
         # line 9: line 6 - line 8, if line 8 >= line 6, return 0
         income_reduced_by_subtractions = max_(
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.py b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.py
new file mode 100644
index 00000000000..dd5ee2168bd
--- /dev/null
+++ b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.py
@@ -0,0 +1,24 @@
+from policyengine_us.model_api import *
+
+
+class mt_pension_exemption_before_phase_out(Variable):
+    value_type = float
+    entity = Person
+    label = "Montana partial pension, annuity, and IRA income exemption before the phase-out"
+    unit = USD
+    definition_period = YEAR
+    reference = (
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6",
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34",
+    )
+    defined_for = StateCode.MT
+
+    def formula(person, period, parameters):
+        p = parameters(period).gov.states.mt.tax.income.subtractions.pension
+        if not p.in_effect:
+            return 0
+        # Worksheet lines 1-3a: the smaller of the cap and the taxpayer's own
+        # pension, annuity, and IRA income.
+        income = add(person, period, p.sources)
+        head_or_spouse = person("is_tax_unit_head_or_spouse", period)
+        return head_or_spouse * min_(p.cap, income)
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.py b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.py
new file mode 100644
index 00000000000..5ff616e1b51
--- /dev/null
+++ b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_indiv.py
@@ -0,0 +1,28 @@
+from policyengine_us.model_api import *
+
+
+class mt_pension_exemption_indiv(Variable):
+    value_type = float
+    entity = Person
+    label = "Montana partial pension, annuity, and IRA income exemption on a separate return"
+    unit = USD
+    definition_period = YEAR
+    reference = (
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6",
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34",
+    )
+    defined_for = StateCode.MT
+
+    def formula(person, period, parameters):
+        p = parameters(period).gov.states.mt.tax.income.subtractions.pension.phase_out
+        exemption = person("mt_pension_exemption_before_phase_out", period)
+        # Lines 4-6: a single filer, or each spouse filing separately, reduces
+        # the exemption by their own federal adjusted gross income. Spouses
+        # filing separately on the same form divide the return's losses
+        # equally, as in mt_agi_indiv.
+        agi = person("adjusted_gross_income_person", period) + person(
+            "mt_loss_ald_reallocation", period
+        )
+        reduction = p.rate * max_(agi - p.threshold, 0)
+        # Line 7
+        return max_(exemption - reduction, 0)
diff --git a/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.py b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.py
new file mode 100644
index 00000000000..238c2efe0eb
--- /dev/null
+++ b/policyengine_us/variables/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.py
@@ -0,0 +1,27 @@
+from policyengine_us.model_api import *
+
+
+class mt_pension_exemption_joint(Variable):
+    value_type = float
+    entity = TaxUnit
+    label = (
+        "Montana partial pension, annuity, and IRA income exemption on a joint return"
+    )
+    unit = USD
+    definition_period = YEAR
+    reference = (
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6",
+        "https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34",
+    )
+    defined_for = StateCode.MT
+
+    def formula(tax_unit, period, parameters):
+        p = parameters(period).gov.states.mt.tax.income.subtractions.pension.phase_out
+        # Line 3b: a joint return adds the spouses' line 3a amounts.
+        exemption = add(tax_unit, period, ["mt_pension_exemption_before_phase_out"])
+        # Lines 4-6: the reduction applies once, to the joint federal
+        # adjusted gross income.
+        agi = tax_unit("adjusted_gross_income", period)
+        reduction = p.rate * max_(agi - p.threshold, 0)
+        # Line 7
+        return max_(exemption - reduction, 0)

From 3e21104ac1e4665396fb3b4e6e6adfae6792685a Mon Sep 17 00:00:00 2001
From: PavelMakarchuk <pavel.ma99@gmail.com>
Date: Fri, 23 Oct 2026 17:13:14 -0400
Subject: [PATCH 2/3] Count military retired pay and Roth conversions in the
 Montana pension exemption

- Add military_retirement_pay (MCA 15-30-2101(25)(b); Form 1040 line 5b) and
  taxable_roth_conversions (worksheet line 2 takes all of line 4b) to the
  exemption's sources. Survivor Benefit Plan annuities stay out: the 2023
  line 34 instructions exclude death benefits, and Form 1099-R code 4 is for
  payments to a decedent's beneficiary.
- Test joint returns in the phase-out range for 2021-2023, where reducing
  line 3b once by the joint federal AGI differs from reducing each spouse.
- Note that years before 2021 use the 2021 cap and threshold.

Co-Authored-By: Claude Opus 5.5 <noreply@anthropic.com>
---
 .../subtractions/pension/in_effect.yaml       |  3 +
 .../income/subtractions/pension/sources.yaml  | 13 ++++
 .../subtractions/pension/integration.yaml     | 11 +++
 ...mt_pension_exemption_before_phase_out.yaml | 27 ++++++++
 .../pension/mt_pension_exemption_joint.yaml   | 68 +++++++++++++++++++
 5 files changed, 122 insertions(+)

diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
index 06e01c03bf8..9c5031acfc2 100644
--- a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/in_effect.yaml
@@ -1,5 +1,8 @@
 description: Montana provides the partial pension, annuity, and IRA income exemption if this is true.
 values:
+  # The exemption also applied before 2021, at lower indexed amounts
+  # (MCA 15-30-2110(2)(c) and (17)). Those amounts are not listed, so earlier
+  # years use the 2021 cap and phase-out threshold.
   2021-01-01: true
   2024-01-01: false
 metadata:
diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
index ce05022ada3..1daf9f0f846 100644
--- a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
@@ -6,6 +6,15 @@ values:
     # but are not separately modeled.
     - taxable_pension_income
     - taxable_retirement_distributions
+    # Roth conversions are IRA or plan distributions included on line 4b or
+    # 5b (MCA 15-30-2101(25)(d)).
+    - taxable_roth_conversions
+    # Uniformed services retired pay (MCA 15-30-2101(25)(b)), reported on
+    # line 5b. Survivor Benefit Plan annuities
+    # (military_retirement_pay_survivors) are left out: the line 34
+    # instructions exclude death benefits, and Form 1099-R code 4 is for
+    # payments to a decedent's beneficiary.
+    - military_retirement_pay
 metadata:
   unit: list
   period: year
@@ -15,3 +24,7 @@ metadata:
       href: https://web.archive.org/web/20220127192023/http://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0010/0150-0300-0210-0010.html
     - title: 2023 Montana Form 2, Partial Pension, Annuity, and IRA Income Exemption Worksheet, line 2
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6
+    - title: 2023 Montana Form 2 instructions, line 34, "Death benefits and premature distributions of retirement income do not qualify for the exemption"
+      href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34
+    - title: 2023 Instructions for Forms 1099-R and 5498, box 7 code 4, "payment to a decedent's beneficiary"
+      href: https://www.irs.gov/pub/irs-prior/i1099r--2023.pdf#page=15
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
index d05f0054b13..779a4525a42 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
@@ -20,3 +20,14 @@
   output:
     # Taxable income 14,940 - 2,988 - 2 x 2,960 = 6,032; tax 6,032 x 2% - 36.
     mt_income_tax: 84.64
+
+- name: Single filer aged 60 with military retired pay
+  period: 2023
+  input:
+    age: 60
+    military_retirement_pay: 20_000
+    state_code: MT
+  output:
+    # MCA 15-30-2101(25)(b): the same Montana AGI (14,940) and tax as the
+    # pension case above.
+    mt_income_tax: 170.76
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
index 039457c1476..f12114c7bb4 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
@@ -15,6 +15,33 @@
   output:
     mt_pension_exemption_before_phase_out: 2_300
 
+- name: Military retired pay qualifies
+  period: 2023
+  input:
+    military_retirement_pay: 20_000
+    state_code: MT
+  output:
+    # MCA 15-30-2101(25)(b), capped at 5,060.
+    mt_pension_exemption_before_phase_out: 5_060
+
+- name: Survivor Benefit Plan annuities do not qualify
+  period: 2023
+  input:
+    military_retirement_pay_survivors: 20_000
+    state_code: MT
+  output:
+    # Line 34 instructions: death benefits do not qualify.
+    mt_pension_exemption_before_phase_out: 0
+
+- name: Roth conversions qualify
+  period: 2023
+  input:
+    taxable_roth_conversions: 3_000
+    state_code: MT
+  output:
+    # Included on Form 2, page 1, line 4b (worksheet line 2).
+    mt_pension_exemption_before_phase_out: 3_000
+
 - name: A dependent's pension does not qualify
   period: 2023
   input:
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
index f82dce64326..198c6890f5d 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_joint.yaml
@@ -90,3 +90,71 @@
     # Worksheet lines 3b-7: 5,060 - 2 x (60,000 - 42,140) is below zero.
     mt_pension_exemption_joint: 0
     mt_agi_joint: 60_000
+
+# In the phase-out range a joint return reduces the combined line 3b amount
+# once by the joint federal AGI (worksheet line 7). Reducing each spouse's
+# amount separately would give a lower total.
+- name: 2021 joint return in the phase-out range
+  period: 2021
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        taxable_private_pension_income: 18_700
+      spouse:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 18_700
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MT
+  output:
+    # 2 x 4,400 - 2 x (37,400 - 36,700)
+    mt_pension_exemption_joint: 7_400
+
+- name: 2022 joint return in the phase-out range
+  period: 2022
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        taxable_private_pension_income: 19_700
+      spouse:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 19_700
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MT
+  output:
+    # 2 x 4,640 - 2 x (39,400 - 38,660)
+    mt_pension_exemption_joint: 7_800
+
+- name: 2023 joint return in the phase-out range
+  period: 2023
+  input:
+    people:
+      head:
+        is_tax_unit_head: true
+        taxable_private_pension_income: 21_500
+      spouse:
+        is_tax_unit_spouse: true
+        taxable_private_pension_income: 21_500
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_code: MT
+  output:
+    # 2 x 5,060 - 2 x (43,000 - 42,140)
+    mt_pension_exemption_joint: 8_400
+    # 43,000 - 8,400
+    mt_agi_joint: 34_600

From c81ca258e5d3d341eab5b29d0a0126ce39120606 Mon Sep 17 00:00:00 2001
From: PavelMakarchuk <pavel.ma99@gmail.com>
Date: Mon, 26 Oct 2026 10:45:41 -0400
Subject: [PATCH 3/3] Count Survivor Benefit Plan annuities in the Montana
 pension exemption

The 2023 line 34 instructions qualify Form 1099-R code 7 income, and the
2023 Instructions for Forms 1099-R and 5498 (p. 2, Military retirement
annuities) report military pensions and survivor benefit annuities with
code 7. Code 4 is for separate death-benefit payments. Use
military_retirement_income (retired pay plus SBP annuities) as the source,
and test that a 2023 SBP annuity of 20,000 gives 5,060 and the same
Montana tax as the pension case (170.76).

Co-Authored-By: Claude Opus 5.5 <noreply@anthropic.com>
---
 .../income/subtractions/pension/sources.yaml   | 18 +++++++++---------
 .../subtractions/pension/integration.yaml      | 11 +++++++++++
 .../mt_pension_exemption_before_phase_out.yaml |  7 ++++---
 3 files changed, 24 insertions(+), 12 deletions(-)

diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
index 1daf9f0f846..3b759e12a8f 100644
--- a/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
+++ b/policyengine_us/parameters/gov/states/mt/tax/income/subtractions/pension/sources.yaml
@@ -9,12 +9,12 @@ values:
     # Roth conversions are IRA or plan distributions included on line 4b or
     # 5b (MCA 15-30-2101(25)(d)).
     - taxable_roth_conversions
-    # Uniformed services retired pay (MCA 15-30-2101(25)(b)), reported on
-    # line 5b. Survivor Benefit Plan annuities
-    # (military_retirement_pay_survivors) are left out: the line 34
-    # instructions exclude death benefits, and Form 1099-R code 4 is for
-    # payments to a decedent's beneficiary.
-    - military_retirement_pay
+    # Uniformed services retired pay and Survivor Benefit Plan annuities
+    # (MCA 15-30-2101(25)(b)), reported on line 5b. The line 34 instructions
+    # qualify Form 1099-R code 7 income, and the 1099-R instructions put
+    # military pensions and survivor benefit annuities on code 7. Death
+    # benefits (code 4) do not qualify.
+    - military_retirement_income
 metadata:
   unit: list
   period: year
@@ -24,7 +24,7 @@ metadata:
       href: https://web.archive.org/web/20220127192023/http://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0010/0150-0300-0210-0010.html
     - title: 2023 Montana Form 2, Partial Pension, Annuity, and IRA Income Exemption Worksheet, line 2
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/2023_Montana_Individual_Income_Tax_Return_Form_2.pdf#page=6
-    - title: 2023 Montana Form 2 instructions, line 34, "Death benefits and premature distributions of retirement income do not qualify for the exemption"
+    - title: 2023 Montana Form 2 instructions, line 34, "Qualifying pension, annuity, and IRA income is reported on federal Form 1099-R with distribution code 7"
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=34
-    - title: 2023 Instructions for Forms 1099-R and 5498, box 7 code 4, "payment to a decedent's beneficiary"
-      href: https://www.irs.gov/pub/irs-prior/i1099r--2023.pdf#page=15
+    - title: 2023 Instructions for Forms 1099-R and 5498, Military retirement annuities, "Use Code 7 in box 7 for reporting military pensions or survivor benefit annuities"
+      href: https://www.irs.gov/pub/irs-prior/i1099r--2023.pdf#page=2
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
index 779a4525a42..da8fa9b549d 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/integration.yaml
@@ -31,3 +31,14 @@
     # MCA 15-30-2101(25)(b): the same Montana AGI (14,940) and tax as the
     # pension case above.
     mt_income_tax: 170.76
+
+- name: Single filer aged 60 with a Survivor Benefit Plan annuity
+  period: 2023
+  input:
+    age: 60
+    military_retirement_pay_survivors: 20_000
+    state_code: MT
+  output:
+    # Form 1099-R code 7: the same Montana AGI (14,940) and tax as the
+    # pension case above.
+    mt_income_tax: 170.76
diff --git a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
index f12114c7bb4..e3607c0841e 100644
--- a/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
+++ b/policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/pension/mt_pension_exemption_before_phase_out.yaml
@@ -24,14 +24,15 @@
     # MCA 15-30-2101(25)(b), capped at 5,060.
     mt_pension_exemption_before_phase_out: 5_060
 
-- name: Survivor Benefit Plan annuities do not qualify
+- name: Survivor Benefit Plan annuities qualify
   period: 2023
   input:
     military_retirement_pay_survivors: 20_000
     state_code: MT
   output:
-    # Line 34 instructions: death benefits do not qualify.
-    mt_pension_exemption_before_phase_out: 0
+    # Form 1099-R code 7 (1099-R instructions, Military retirement
+    # annuities), which the line 34 instructions qualify; capped at 5,060.
+    mt_pension_exemption_before_phase_out: 5_060
 
 - name: Roth conversions qualify
   period: 2023