Draft would allow Montana tax exemptions for child care savings

Residents and employers would be allowed to establish child care savings accounts with Montana income tax benefits. Montana residents could open their own accounts. Employers could open accounts for employees, and self-employed people are included. Eligible care costs must meet the federal definition of work-related expenses. Money must stay in the account or pay eligible care costs or allowed account fees to keep its tax exemption. Employer accounts must follow any applicable law, contract, or union agreement. The draft would apply to income tax years beginning after December 31, 2025. Inflation adjustments would begin with tax years after 2026.

Account owners would face withdrawal limits, taxes, and a 10% penalty when using savings for other purposes. These rules would cover employees and other owners withdrawing money from child care savings accounts. Previously tax-exempt money withdrawn for other uses would count as ordinary income. Eligible child care costs and allowed account fees are exceptions to the restriction on withdrawing for other uses. For people managing their own accounts, the year-end withdrawal date would be the last weekday in December. These rules would apply to income tax years beginning after December 31, 2025.

People who knowingly use false documents to justify account withdrawals would face theft penalties. The prohibition would cover anyone using false claims, receipts, statements, or bills to justify money taken from an account. The person must knowingly prepare false documents or cause someone else to prepare them. The draft assigns overlapping penalty ranges to claims worth exactly $300. The draft would apply to income tax years beginning after December 31, 2025.