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Live in Montana, Work in Illinois: Which State Taxes Your Paycheck?

Both states — credit offsets the double taxIllinois withholds

Answer

Illinois withholds and Montana credits. Without an agreement between them, both states are entitled to tax income earned in Illinois by a Montana resident. The mechanism that stops you paying twice is the credit on the Montana resident return, which is why the Illinois return has to be completed first.

Last verified

Two states can lawfully tax the same wages: Illinois because the work happened there, Montana because you live there. Nothing prevents the overlap in advance — it is unwound afterwards, on the Montana return, through the credit for taxes paid to another state.

A Montana resident taxed by another state on the same income claims the credit for taxes paid to other states on Form 2 (credit for income tax paid to another state). The credit is capped at the Montana tax on that income, so it removes the double tax but never refunds the excess when the other state charges more.

What you file

  1. 1Nonresident return · IllinoisForm IL-1040 with Schedule NR

    File the Illinois nonresident return FIRST — you need the Illinois tax figure before you can complete Montana.

  2. 2Resident return · MontanaForm 2 (credit for income tax paid to another state)

    File a Montana resident return reporting all income, then claim the credit for tax paid to Illinois. The credit is capped at what Montana would have charged on that same income, so if Illinois taxes it at a higher rate the difference is not refunded.

The two states, side by side

 MontanaIllinois
Taxes wagesYes — graduatedYes — flat
Reciprocity partners1 (Form MW-4)4 (Form IL-W-5-NR)
Convenience ruleNoNo
Nonresident returnForm 2 with the nonresident/part-year scheduleForm IL-1040 with Schedule NR
Credit for other-state taxForm 2 (credit for income tax paid to another state)Schedule CR
Nonresident safe harbourNone published30 days
Local income taxNoNo
Revenue departmentMontana Department of RevenueIllinois Department of Revenue
Last verified

The other direction

Reversing the commute does not always reverse the answer. Living in Illinois and working in Montana gives:Both states — credit offsets the double tax.

Illinois to Montana →

Same two states, different situation

The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.

Other Montana pairs

Questions people actually ask

I live in Montana and work in Illinois. Which state takes the tax out of my paycheck?

Illinois withholds and Montana credits. Without an agreement between them, both states are entitled to tax income earned in Illinois by a Montana resident. The mechanism that stops you paying twice is the credit on the Montana resident return, which is why the Illinois return has to be completed first.

Which state should my employer be withholding for?

Illinois. The wages are sourced to Illinois, so Illinois withholding is correct and there is no Montana withholding to set up.

Will I end up paying tax twice on the same income?

Not twice over, but you will pay the higher of the two rates. Montana gives residents a credit for tax paid to Illinois on the same income, claimed on Form 2 (credit for income tax paid to another state). The credit is capped at the Montana tax on that income, so if Illinois taxes it more heavily the excess is not refunded by either state.

How current is this?

The Montana and Illinois rules on this page were last checked against Montana Department of Revenue and Illinois Department of Revenue on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.

Sources

Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.