House Bill No. 525

Introduced By _______________________________________________________________________________



A Bill for an Act entitled: "An Act providing that the payment of a penalty may not be imposed for nonpayment or underpayment of estimated taxes on federal annuity payments unless the department has entered an agreement for voluntary withholding from the federal annuity payments; amending section

15-30-241, MCA; and providing an immediate effective date and a retroactive applicability date."



Be it enacted by the Legislature of the State of Montana:



Section 1.  Section 15-30-241, MCA, is amended to read:

"15-30-241.   Estimated tax -- payment -- exceptions -- penalty. (1) (a) Each individual subject to tax under this chapter, except farmers or ranchers as defined in subsection (6), shall pay for the tax year, through employer withholding, as provided in 15-30-202, through payment of estimated tax in four installments, as provided in subsection (2) of this section, or through a combination of employer withholding and estimated tax payments, at least:

(i)  90% of the tax for the current tax year, less tax credits and withholding allowed the taxpayer; or

(ii) an amount equal to 100% of the individual's tax liability for the preceding tax year, if the preceding tax year was a period of 12 months and if the individual filed a return for the tax year.

(b)  Payment of estimated taxes under this section is not required if:

(i)  the combined tax liability of employer withholding and estimated tax for the current year is less than $500 after reductions for credits and withholding;

(ii) the individual did not have any tax liability for the preceding tax year, which was a tax year of 12 months, and if the individual was a citizen or resident of the United States throughout that tax year;

(iii) the underpayment was caused by reason of casualty, disaster, or other unusual circumstances that the department determines to constitute good cause; or

(iv) the individual retired in the tax year after having attained the age of 62 or if the individual became disabled in the tax year. In addition, payment of estimated taxes under this section is not required in the tax year following the tax year in which the individual retired or became disabled.

(2)  Estimated taxes must be paid in four installments according to one of the following schedules:

(a)  For each taxpayer whose tax year begins on January 1, estimated tax payments are due on the following dates:

Installment Date

First April 15

Second June 15

Third September 15

Fourth January 15 of the following tax year

(b)  For each taxpayer whose tax year begins on a date other than January 1, estimated tax payments are due on the following dates:

Installment Date

First 15th day of the 4th

month following the

beginning of the tax year

Second 15th day of the 6th

month following the

beginning of the tax year

Third 15th day of the 9th

month following the

beginning of the tax year

Fourth 15th day of the month

following the close of the tax year

(3)  (a) Except as provided in subsection (4), each installment must be 25% of the required annual payment determined pursuant to subsection (1). If the taxpayer's tax situation changes, each succeeding installment must be proportionally changed so that the balance of the required annual payment is paid in equal installments over the remaining period of time.

(b)  If the taxpayer's tax situation changes after the date for the first installment or any subsequent installment, as specified in subsection (2)(a) or (2)(b), so that the taxpayer is required to pay estimated taxes, the taxpayer shall pay 25% for each succeeding installment except for the first one in which a payment is required. For estimated taxes required to be paid beginning with the second installment provided for in subsection (2)(a) or (2)(b), the taxpayer shall pay 50% for that installment and 25% for the third and fourth installments, respectively. For estimated taxes required to be paid beginning with the third installment provided for in subsection (2)(a) or (2)(b), the taxpayer shall pay 75% for that installment and 25% for the fourth installment.

(4)  (a) If for any required installment the taxpayer determines that the installment payment is less than the amount determined under subsection (3)(a), the lower amount may be paid as an annualized income installment.

(b)  For any required installment, the annualized income installment is the applicable percentage described in subsection (4)(c) applied to the tax computed on the basis of annualized taxable income in the tax year for the months ending before the due date for the installment less the total amount of any prior required installments for the tax year.

(c)  For the purposes of this subsection (4), the applicable percentage is determined according to the following schedule:

Required Installment Applicable Percentage

First 22.5%

Second 45%

Third 67.5%

Fourth 90%

(d)  A reduction in a required installment resulting from the application of an annualized income installment must be recaptured by increasing the amount of the next required installment, determined under subsection (3)(a), by the amount of the reduction. Any subsequent installment must be increased by the amount of the reduction until the amount has been recaptured.

(5)  (a) If an estimated tax, an employer withholding tax, or a combination of estimated tax and employer withholding tax is underpaid, there must be added to the amount due under this chapter a penalty equal to 10% a year on the amount of the underpayment. The penalty is computed on the amount of the underpayment, as determined in subsection (5)(b), for the period from the time the payment was due to the date payment was made or to the 15th day of the 4th month of the year following the tax year in which the payment was to be made, whichever is earlier.

(b)  For the purpose of determining the penalty in subsection (5)(a), the amount of the underpayment is the required installment amount less the installment amount paid, if any, on or before the due date for the installment.

(c)  For the purpose of determining the penalty in subsection (5)(a), an estimated payment must be credited against unpaid required installments in the order in which those installments are required to be paid.

(d)  For each married taxpayer filing separately on the same form, the penalty provided for in subsection (5)(a) must be computed on the combined tax liability after reductions for credits and withholding, as shown on the taxpayer's return.

(e)  A penalty may not be imposed with respect to any underpayment of the fourth installment of estimated taxes if:

(i)  the taxpayer pays in full the amount computed on the return as payable; and

(ii) the taxpayer files a return on or before the last day of the month following the close of the tax year referred to in subsection (2)(a) or (2)(b).

(f) A penalty may not be imposed with respect to any nonpayment or underpayment of estimated taxes on any federal annuity payments unless the department has entered into an agreement for voluntary state tax withholding from the federal annuity payments as provided in 15-30-215.

(6)  For the purposes of this section, "farmer or rancher" means a taxpayer who derives at least 66 2/3% of the taxpayer's gross income, as defined in 15-30-101(7), from farming or ranching operations, or both.

(7)  The department shall promulgate rules governing reasonable extensions of time for paying the estimated tax. An extension may not be for more than 6 months."



NEW SECTION. Section 2.  Effective date -- retroactive applicability. [This act] is effective on passage and approval and applies retroactively, within the meaning of 1-2-109, to tax years beginning after December 31, 1996.

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