Comprehensive Guide to Payroll Taxes in Montana

Employers must navigate various regulations and requirements to ensure proper payroll withholding in each US state. On top of withholding federal taxes such as Medicare and Social Security taxes and paying Federal Unemployment Tax, you're also responsible for withholding and paying Montana state payroll taxes.

This guide outlines the state payroll taxes Montana employers must withhold and remit, and the required employer contributions, such as unemployment insurance and workers' compensation.

State Income Tax

Employers are responsible for withholding and remitting State Income Tax (SIT) to the state from their Montana employees' wages through Montana’s official online portal. Each year, you must file a Montana Annual W-2 1099 Withholding Tax Reconciliation (Form MW-3) return.

SIT is charged at a rate of 4.7% on an employee's personal income (excluding long-term capital gains) up to $20,500. A higher rate of 5.9% applies to personal income (excluding long-term capital gains) of $20,500 and above. Employees must complete the Montana Employee's Withholding Allowance and Exemption Certificate (Form MW-4) to determine the taxable wage.

The required filing and payment frequency varies based on the total amount withheld during the the 12 months from July 1 of the preceding year to June 30 of the current year, known as the 'lookback period'.

• Annual: Payment is due by January 31 if the following year for employers who remit up to $1,199
• Monthly: Payment is due by 15th of following month for employers who remit $1,200—$11,999 and for all new withholding accounts
• Accelerated: The federal payment schedule applies for employers who remit $12,000 or more

Employers who miss the filing deadline in Montana may incur a penalty fine ranging from $50 to 5% of the tax due per month, up to a maximum of 25%. The late payment of withheld tax may also incur a fee of 1.5% per month, up to 15% of the tax due. Montana charges compound daily interest on any outstanding taxes and underpaid estimated taxes from the deadline date. For SIT, the 2024 interest rate is 7% per annum.

There are no Local Income Taxes imposed in Montana by individual cities.

State Unemployment Insurance

Employers in Montana must pay State Unemployment Insurance (SUI) to the Montana Department of Labor and Industry for each employee, to provide temporary payments to people who are unemployed through no fault of their own.

SUI payments are based on a taxable annual wage base of $43,000 per employee in 2024. The tax rate varies based on the employer's experience rating and usually ranges between 0% and 1.42%. However, 'deficit employers' who have received more SUI benefits than they've contributed are charged a higher rate of SUI, between 2.92 % and 6.12% in 2024.

Most new employers with less than three full federal fiscal years of experience pay 1% SUI. Higher rates apply for new for employers in Construction (2.1%), Agriculture, Forestry, Hunting, and Fishing (1.30%), and Mining (1.2%).

All quarterly SUI reports must be filed electronically, and electronic payments are preferred. You can manage and pay your Montana unemployment insurance through an easy-to-use online portal.

Montana quarterly Unemployment Insurance (UI) tax and wage reports are due the last day of the month following the end of a calendar quarter (i.e., April 30th, July 31st, October 31st, and January 31st). Late filers and employers who haven't paid SUI owed in full when rates are calculated in December are charged a penalty rate at 50% higher than their assigned rate.

Paying your Montana Workers’ Compensation

Montana employers with one or more employees are obligated to provdie workers’ compensation coverage for their employees. Workers’ Compensation provides financial support for employees in the event of work-related injury or illness, as well as legal protection for both employers and employees.

Workers’ compensation is typically purchased from a qualified commercial carrier in the state, but some employers may be permitted to self-insure its workers' compensation liabilities by the Montana Department of Labor and Industry. 

Please be aware of any applicable surcharges and ensure that you verify your Workers’ Compensation Insurance 's compliance with state’s regulations.

Simplify US payroll tax compliance with Deel

While this guide provides essential information on Montana payroll taxes, payroll compliance and state requirements extend beyond what is covered above. To streamline the process and ensure full compliance, companies can turn to Deel. 

Deel offers a comprehensive solution for managing US and international payroll, including payments, taxes, worker classification, and more. Speak with an expert today to see how you can streamline your US payroll processes and ensure compliance with state regulations.