Updated October 30, 2026. Quick answer: No special break, as far as the 2025 instructions show. They list no federal civil service pension subtraction; the retirement-related lines cover “Subtraction for working military retirees and military survivor benefits” and Railroad Retirement benefits. Separately, “Taxpayers 65 and older receive a $5,660 subtraction from federal taxable income.” It is not limited to pensions.
What Montana does with a FERS or CSRS annuity
| Question | What the Montana documents say |
|---|---|
| What the source says | The 2025 Montana Form 2 instructions name no subtraction for federal civil service pensions (CSRS or FERS), and the only retirement-income subtractions they list are for working military retirees and Railroad Retirement benefits, so a federal civil pension stays in federal taxable income. |
| State rate printed | The state rates appear only in a table in the instructions and are not quoted here; no rate is stated in prose that applies to ordinary income. |
| Change for 2026 | House Bill 337 lowers the top marginal tax rate and raises the income brackets for tax year 2026, but no pension change is printed in the state documents cited here. |
In the Montana documents’ own words
- “Montana does not tax federal Railroad Retirement Benefits” (2025 Montana Individual Income Tax Return Form 2 Instructions)
How this differs from other pensions in Montana
Montana starts from federal taxable income and does not single out federal pensions, so they are treated like other pension and annuity income. Only working military retirement income gets a partial subtraction. See also Does Montana tax pensions? and military retirement pay.
FERS, CSRS and your TSP
The state documents cited here do not address TSP withdrawals, though IRA distributions and pensions on the federal return flow into Montana income. For the Thrift Savings Plan itself, see state tax on TSP withdrawals and the TSP calculator.
Where this rule sits on the Montana return
Montana starts from federal taxable income and subtracts the items listed on Schedule I. A federal annuity included in your federal taxable income therefore stays in Montana taxable income unless a listed subtraction applies.
Checks before you rely on this answer
- Claim the age 65 subtraction if you qualify, but do not count it as a pension exclusion, since the instructions give it to taxpayers 65 and older without tying it to pension income.
- If you also have military retirement income, read the working military retiree line separately.
- Keep reporting the annuity on your federal return as usual.
What the Montana documents leave open
The instructions never name CSRS or FERS, so that a federal annuity is taxed is read from the absence of any listed subtraction. MCA 15-30-2110 is shown as repealed, but the page read does not say what it covered. The rate schedule appears only in a PDF table and is left out, TSP is not addressed, and no 2026 booklet exists yet.
Common mistakes
- Looking for a federal pension exclusion in the Montana instructions. They list none; the retirement-related subtraction lines are for working military retirees and Railroad Retirement benefits.
- Treating Railroad Retirement treatment as a federal pension rule. The instructions say Montana does not tax Railroad Retirement Board benefits, which is a different payer.
Related: Does Montana tax pensions?, Montana military retirement pay, Montana retirement deduction line by line, and FERS, TSP and Social Security sequencing.
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Answer againSources
- 2025 Montana Individual Income Tax Return Form 2 Instructions: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf
- MCA 15-30-2110 (Repealed): https://mca.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0100/0150-0300-0210-0100.html
Read from the state documents linked above on October 30, 2026. General information, not tax advice.