Not separating Montana income from our combined AGI when figuring the state tax owed.

[Tomsalwayssmilin]

When filling out the earned income section I have entered the amounts for both of the states that my wife has worked in. Everything looked good as far as the federal taxes went. Then it came to the state tax section. It asks for the Montana portion of our federal income amount. I entered that amount and proceeded accordingly. When it reaches the Montana tax summary it shows the Montana adjusted income amount as our TOTAL income for both of us in both of the states that we've worked and not just the actual Montana Adjusted Income. It shows the standard deduction, but the Montana taxable income is still showing out total income from both states and not just her Montana income! I've went back and reviewed every section multiple times and it is all entered correctly. Both states are each separated with the correct amounts on our W2's. For whatever reason that last section in the state taxes is not separating her Montana income from our AGI's in a different state. I cannot imagine that her Montana state tax is being figured on both of our incomes from another state. Can anyone please explain this to me?   Thank you!!

[JohnW152]

It sounds like this calculation is working as it should.  Your federal adjusted gross income -- even income earned in another state -- transfers over to your Montana return.

According to Montana Taxable Income Calculation in the Instructions for Form 2:

Taxpayers will use their federal taxable income as the base for calculating their Montana taxable income.  Montana's current system uses the federal adjusted gross income as the base for determining Montana taxable income.

Your Montana tax is then prorated, based on the ratio of your Montana-source income to Montana adjusted gross income.  See Nonresident Tax in the link above for more information.