(1) For tax years beginning January 1, 2016, the pension and annuity exclusion is limited to the lesser of the pension and annuity income received or $4,070 for a single person or married couple where only one person receives pension or annuity income.
(a) The exclusion is reduced $2 for every $1 of federal adjusted gross income in excess of $33,910 as shown on the taxpayer's return.
(b) By November 1 of each year, the department will multiply the exclusion amount and the federal adjusted gross income amount in (a) by the inflation figure for the taxable year as prescribed in 15-30-2110, MCA.
(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 the amount allowed in (1). 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 the amount allowed in (1)(a).
(4) Examples illustrating the application of (1) through (3) are:
(a) Jane, a single taxpayer, has federal adjusted gross income of $30,000 which is made up of $5,000 of pension income and $25,000 of other income. In 2016, her pension and annuity exclusion for Montana purposes is limited to $4,070.
(b) John, a married taxpayer, files separately from his spouse and has a federal adjusted gross income of $35,000, which consists of $17,000 of taxable pension income and $18,000 of other income. In 2016, John's Montana pension exclusion is reduced to $1,890 as a result of the limitation based on his federal adjusted gross income. ($4,070 - (($35,000 - $33,910) x 2)).
(c) 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 $10,000. Edith's taxable pension included in federal adjusted gross income is $2,000. Their combined federal adjusted gross income is $30,000. Their Montana pension and annuity exclusion is limited to their individual pensions. As a result, Frank receives the maximum $4,070 allowable in 2016 and Edith receives $2,000. The total they can claim as Montana pension exclusion on their 2016 Montana tax return is $6,070.
(d) Assume the same facts as in (c), but Frank and Edith's 2016 federal adjusted gross income is $35,000. The reduction based on federal adjusted gross income applies, and their combined Montana pension annuity exclusion is $3,890. ($6,070 - (($35,000 - $33,910) x 2)).