(1) The pension and annuity exclusion is limited to the lesser of the pension and annuity income received or $3,600 for a single person or married couple where only one person receives pension or annuity income. The exclusion is reduced $2 for every $1 over federal adjusted gross income of $30,000.
(2) When married taxpayers file a joint return and each receives pension and annuity income, their individual exclusion is limited to the lesser of each person's retirement income or $3,600. The total of both individuals' exclusion is phased out at the rate described in (1).
(3) When married taxpayers file separately, each spouse's exclusion and phase-out are computed independently and a spouse's exclusion begins to be phased out only when his or her federal adjusted gross income exceeds $30,000. Examples are:
(a) Jane, a single taxpayer has federal adjusted gross income of $20,000 which is made up of $5,000 of pension income and $15,000 of other income. Her pension and annuity exclusion for Montana purposes is $3,600.
(b) Frank and Edith, a married couple, file a joint income tax return and both receive pension and annuity income. Frank's taxable pension included in federal adjusted gross income is $5,600. Edith's taxable pension included in federal adjusted gross income is $2,000. Their combined federal adjusted gross income is $25,000. Their Montana pension and annuity exclusion is $5,600 (the maximum $3,600 for Frank and the full taxable amount of $2,000 for Edith). Even though their combined federal adjusted gross income is below $30,000, Edith is not entitled to a $3,600 pension exclusion as the exclusion is limited to her taxable pension of $2,000.
(c) John, a single taxpayer, has federal adjusted gross income of $31,000. This consists of $8,000 of taxable pension income and $24,000 of other income. John's Montana pension exclusion is $1,600. ($3,600 - (($31,000 - $30,000) x 2)).
(d) John and Barbara, a married couple, file a joint income tax return and both report federal taxable pension income. John's federal taxable pension is $5,600 and Barbara's federal taxable pension income is $3,000. Their combined federal adjusted gross income is $33,000. Their combined Montana pension and annuity exclusion is $600. ($6,600 - (($33,000 - $30,000) x 2)).