Model Montana's working military retirement and survivor benefit exemption

changelog.d/fix-mt-military-retirement-exemption.added.md

@@ -0,0 +1 @@
+Montana's working military retirement and survivor benefit exemption (MCA 15-30-2120(3)(n)) from tax year 2024: the lesser of half the return's military retirement pay or its Montana earned income, plus half of military survivor benefits.

policyengine_us/parameters/gov/states/mt/tax/income/subtractions/military_retirement/in_effect.yaml

@@ -0,0 +1,14 @@
+description: Montana allows the working military retirement and survivor benefit exemption when this is true.
+values:
+  0000-01-01: false
+  # 15-30-2120(3)(n) first applies to tax year 2024.
+  2024-01-01: true
+metadata:
+  unit: bool
+  period: year
+  label: Montana military retirement exemption in effect
+  reference:
+    - title: MCA 15-30-2120(3)(n)
+      href: https://archive.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0200/0150-0300-0210-0200.html
+    - title: Montana Revenue Interim Committee, Tax Benefits for Veterans (November 2025), p. 1
+      href: https://archive.legmt.gov/content/Committees/Interim/2025-2026/RIC/Meetings/November_12_13_2025/veteran-tax-benefits.pdf#page=1

policyengine_us/parameters/gov/states/mt/tax/income/subtractions/military_retirement/rate.yaml

@@ -0,0 +1,12 @@
+description: Montana subtracts this share of military retirement pay, up to the filer's Montana earned income, under the working military retirement exemption.
+values:
+  2024-01-01: 0.5
+metadata:
+  unit: /1
+  period: year
+  label: Montana working military retirement exemption rate
+  reference:
+    - title: MCA 15-30-2120(3)(n)(i) and (8)(a)
+      href: https://archive.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0200/0150-0300-0210-0200.html
+    - title: 2025 Montana Form WMRE, Part II, line 7
+      href: https://revenue.mt.gov/files/Forms/Montana-Working-Military-Retirement-and-Survivor-Benefit-Exemption.pdf#page=1

policyengine_us/parameters/gov/states/mt/tax/income/subtractions/military_retirement/survivor_rate.yaml

@@ -0,0 +1,12 @@
+description: Montana subtracts this share of military survivor benefits under the survivor benefit exemption.
+values:
+  2024-01-01: 0.5
+metadata:
+  unit: /1
+  period: year
+  label: Montana military survivor benefit exemption rate
+  reference:
+    - title: MCA 15-30-2120(3)(n)(ii)
+      href: https://archive.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0200/0150-0300-0210-0200.html
+    - title: 2025 Montana Form WMRE, Part III, line 2
+      href: https://revenue.mt.gov/files/Forms/Montana-Working-Military-Retirement-and-Survivor-Benefit-Exemption.pdf#page=1

policyengine_us/parameters/gov/states/mt/tax/income/subtractions/subtractions.yaml

@@ -15,12 +15,11 @@ values:
     - salt_refund_income # Form 2 Subtractions Schedule
     - mt_other_subtractions
   2024-01-01:
-    # MCA 15-30-2120(3)(n) allows exempting up to 50% of military retirement pay
-    # (capped at MT earned income, (3)(n)(i)) and up to 50% of military survivor
-    # benefits regardless of other income ((3)(n)(ii), Form WMRE); not yet modeled.
     - mt_interest_exemption_person
     - mt_tuition_subtraction_person
     - mt_old_age_subtraction
+    # MCA 15-30-2120(3)(n), Form WMRE
+    - mt_military_retirement_exemption
     # 2021 Mont. Laws ch. 503 (SB 399) section 65 repealed 15-30-2110, MCA,
     # and with it the disability income exclusion, for tax years beginning
     # after December 31, 2023 (section 70(1)).
@@ -34,6 +33,8 @@ values:
     - mt_interest_exemption_person
     - mt_tuition_subtraction_person
     - mt_old_age_subtraction
+    # MCA 15-30-2120(3)(n), Form WMRE
+    - mt_military_retirement_exemption
     # TODO: Remove this subtraction starting in 2029 because the federal
     # Schedule 1-A deductions expire after 2028.
     - mt_federal_obbba_subtraction
@@ -54,6 +55,8 @@ metadata:
       href: https://leg.mt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
     - title: 2025 Montana Form 2 Instructions
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=21
+    - title: 2025 Montana Form WMRE
+      href: https://revenue.mt.gov/files/Forms/Montana-Working-Military-Retirement-and-Survivor-Benefit-Exemption.pdf#page=1
     - title: "2021 Montana Session Laws, chapter 503 (SB 399), section 65 (repealer) and section 70 (effective dates) #page 68,70"
       href: https://archive.legmt.gov/content/Publications/sales/2021SessionLaws_V3_ERRATA-VERSION.pdf#page=68
     - title: 2024 Montana Form 2 instructions, repealed deductions

policyengine_us/tests/policy/baseline/gov/states/mt/tax/income/subtractions/mt_military_retirement_exemption.yaml

@@ -0,0 +1,200 @@
+# MCA 15-30-2120(3)(n), (8) and (9); 2025 Montana Form WMRE.
+
+- name: A working retiree exempts half the military retirement pay
+  period: 2026
+  input:
+    people:
+      head:
+        age: 45
+        military_retirement_pay: 30_000
+        employment_income: 60_000
+      spouse:
+        age: 43
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_name: MT
+  output:
+    # Form WMRE line 8: the lesser of 60,000 and 0.5 * 30,000.
+    mt_military_retirement_exemption: [15_000, 0]
+    mt_subtractions: [15_000, 0]
+
+- name: Montana earned income limits the retirement exemption
+  period: 2025
+  input:
+    people:
+      head:
+        age: 50
+        military_retirement_pay: 30_000
+        employment_income: 8_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: 8_000
+
+- name: A retiree with no Montana earned income gets no retirement exemption
+  period: 2026
+  input:
+    people:
+      head:
+        age: 67
+        military_retirement_pay: 45_000
+        social_security_retirement: 30_000
+        taxable_interest_income: 5_000
+      spouse:
+        age: 65
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: [0, 0]
+
+- name: A survivor exempts half the survivor benefits with no earned income
+  period: 2025
+  input:
+    people:
+      head:
+        age: 70
+        military_retirement_pay_survivors: 10_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: 5_000
+
+- name: Retirement pay and survivor benefits on one return each get their exemption
+  period: 2026
+  input:
+    people:
+      head:
+        age: 60
+        military_retirement_pay: 20_000
+        self_employment_income: 5_000
+      spouse:
+        age: 58
+        military_retirement_pay_survivors: 10_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_name: MT
+  output:
+    # min(0.5 * 20,000, 5,000) + 0.5 * 10,000
+    mt_military_retirement_exemption: [10_000, 0]
+
+- name: The spouse's military pay counts against the return's wages
+  period: 2026
+  input:
+    people:
+      head:
+        age: 50
+        employment_income: 60_000
+      spouse:
+        age: 48
+        military_retirement_pay: 30_000
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+    households:
+      household:
+        members: [head, spouse]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: [15_000, 0]
+
+- name: A business loss does not reduce wages in the earned income limit
+  period: 2026
+  input:
+    people:
+      head:
+        age: 50
+        military_retirement_pay: 30_000
+        employment_income: 6_000
+        self_employment_income: -4_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_name: MT
+  output:
+    # Form WMRE line 3 enters a business loss as 0.
+    mt_military_retirement_exemption: 6_000
+
+- name: A dependent's military pay does not count on the filer's return
+  period: 2026
+  input:
+    people:
+      head:
+        age: 70
+        employment_income: 40_000
+      dependent:
+        age: 45
+        is_tax_unit_dependent: true
+        military_retirement_pay: 20_000
+    tax_units:
+      tax_unit:
+        members: [head, dependent]
+    households:
+      household:
+        members: [head, dependent]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: [0, 0]
+
+- name: A filer who fails the residency or timing conditions gets no exemption
+  period: 2026
+  input:
+    people:
+      head:
+        age: 45
+        military_retirement_pay: 30_000
+        employment_income: 60_000
+        mt_military_retirement_exemption_eligible: false
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: 0
+
+- name: Montana has no military retirement exemption before 2024
+  period: 2023
+  input:
+    people:
+      head:
+        age: 45
+        military_retirement_pay: 30_000
+        employment_income: 60_000
+    tax_units:
+      tax_unit:
+        members: [head]
+    households:
+      household:
+        members: [head]
+        state_name: MT
+  output:
+    mt_military_retirement_exemption: 0
+    mt_subtractions: 0

policyengine_us/variables/gov/states/mt/tax/income/subtractions/military_retirement/mt_military_retirement_exemption.py

@@ -0,0 +1,49 @@
+from policyengine_us.model_api import *
+
+
+class mt_military_retirement_exemption(Variable):
+    value_type = float
+    entity = Person
+    label = "Montana working military retirement and survivor benefit exemption"
+    unit = USD
+    definition_period = YEAR
+    documentation = (
+        "Form WMRE computes the exemption for the whole return, so the tax "
+        "unit head carries it."
+    )
+    reference = (
+        "https://archive.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0200/0150-0300-0210-0200.html",
+        "https://revenue.mt.gov/files/Forms/Montana-Working-Military-Retirement-and-Survivor-Benefit-Exemption.pdf#page=1",
+    )
+    defined_for = StateCode.MT
+
+    def formula(person, period, parameters):
+        p = parameters(period).gov.states.mt.tax.income.subtractions.military_retirement
+        tax_unit = person.tax_unit
+        filer = person("is_tax_unit_head_or_spouse", period)
+        eligible = filer & person("mt_military_retirement_exemption_eligible", period)
+        retirement_pay = tax_unit.sum(
+            eligible * person("military_retirement_pay", period)
+        )
+        survivor_benefits = tax_unit.sum(
+            eligible * person("military_retirement_pay_survivors", period)
+        )
+        # 15-30-2120(8): the lesser of the return's Montana source wage
+        # income or the rate times the military retirement pay. Form WMRE
+        # lines 2 to 5 count wages and the net income of a business, a
+        # partnership or S corporation, and a farm, each at least zero.
+        earned_income = 0
+        for source in [
+            "irs_employment_income",
+            "self_employment_income",
+            "partnership_s_corp_income",
+            "farm_income",
+        ]:
+            earned_income = earned_income + max_(
+                0, tax_unit.sum(filer * person(source, period))
+            )
+        retirement_exemption = min_(p.rate * retirement_pay, earned_income)
+        # 15-30-2120(3)(n)(ii): survivor benefits need no earned income.
+        survivor_exemption = p.survivor_rate * survivor_benefits
+        is_head = person("is_tax_unit_head", period)
+        return p.in_effect * is_head * (retirement_exemption + survivor_exemption)

policyengine_us/variables/gov/states/mt/tax/income/subtractions/military_retirement/mt_military_retirement_exemption_eligible.py

@@ -0,0 +1,23 @@
+from policyengine_us.model_api import *
+
+
+class mt_military_retirement_exemption_eligible(Variable):
+    value_type = bool
+    entity = Person
+    label = "Meets the residency and timing conditions of the Montana military retirement exemption"
+    definition_period = YEAR
+    default_value = True
+    documentation = (
+        "MCA 15-30-2120(9): the retiree or survivor became a Montana resident on "
+        "or after June 30, 2023, or lived in Montana before the military "
+        "retirement pay or survivor benefits began; claims the exemption "
+        "within five consecutive years of meeting that condition (tax years "
+        "2024 through 2028 for residents from before July 2023); and has not "
+        "claimed it before moving out of Montana. Set this to false for a "
+        "filer who fails any of these conditions."
+    )
+    reference = (
+        "https://archive.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0200/0150-0300-0210-0200.html",
+        "https://revenue.mt.gov/files/Forms/Montana-Working-Military-Retirement-and-Survivor-Benefit-Exemption.pdf#page=2",
+    )
+    defined_for = StateCode.MT

policyengine_us/variables/household/income/person/retirement/military_retirement_pay.py

@@ -15,8 +15,6 @@ class military_retirement_pay(Variable):
         "such as CRSC and VA Dependency and Indemnity Compensation (DIC) should be reported "
         "under veterans_benefits. Included in federal gross income under 26 U.S.C. § 61(a)(10).\n\n"
         "Known limitations:\n"
-        "- Montana (MCA 15-30-2120(3)(n)): allows a deduction of up to 50% of military retired pay "
-        "(capped at Montana earned income) starting in 2024; this deduction is not yet modeled.\n"
         "- North Carolina (N.C. Gen. Stat. § 105-153.5(b)(5a)): deduction requires either 20 years of military "
         "service or medical retirement; entering military_retirement_pay alone without service record "
         "variables (years_in_military or is_permanently_disabled_veteran) defaults to no deduction."