Payroll tax in Montana: What employers need to know [2024]

Running a successful business in Montana comes with many challenges: Identifying your market, finding the right team, and complying with federal, state, and local tax regulations. Payroll taxes can be particularly challenging. In addition to federal FICA taxes like Medicare and Social Security, businesses in Montana are responsible for state payroll taxes. Because state-specific tax laws vary across the country, you’ll need to have a solid grasp of the regulations where your employees live.

Montana has a progressive tax system, making it more complex than states with a flat income tax. This means that the more your employees earn, the more they’ll pay in taxes. And the same goes for you as an employer: The more you pay, the more you’ll have to withhold from employee paychecks and contribute to payroll taxes. 

Regardless of your business size, if you have Montana employees, you’ll need to know the different types of payroll taxes, who pays what, how much, when, and to whom. We’ll walk you through that and more in this primer. 

The 2 Montana payroll taxes

Montana has two state payroll taxes: income tax and unemployment insurance tax. The Montana Department of Revenue collects state income tax. Employers withhold this tax and submit it to the DOR on their employees’ behalf—with few exceptions. 

State unemployment insurance must be paid and submitted to the Montana Department of Labor and Industry by employers. All employers with a payroll of $1,000 or more per calendar year must register for unemployment insurance and pay it. This includes those acquiring a business already subject to unemployment insurance.

Unemployment insurance tax

Montana’s state unemployment insurance tax (SUI) is part of a national US Department of Labor program (FUTA) under the Social Security Act. It provides temporary payments to residents who find themselves unemployed due to reasons outside their control, like layoffs. The Montana Department of Labor and Industry sets the tax rates and wage base. Rates for new employers range from 1.3% to 2.1%, depending on the employer’s industry classification. These rates include the Administrative Fund Tax (AFT). 

Nonprofit organizations, Native American Tribes and their tribal units, and government agencies can elect to use a reimbursable UI tax account. In this case, the employer reimburses all unemployment benefits charged to their account. They must file quarterly and pay the AFT on the total wages paid each quarter.

Montana requires all new hires and rehired employees to be added to the State Directory of New Hires database. Employers must report employee details to the Child Support Enforcement Division of the Montana Department of Public Health and Human Services (DPHHS) within 20 days of the employee’s hiring date. 

Personal income tax 

Montana state income tax helps fund public services like education, public safety, and health and human services. Because Montana has a progressive tax system, the amount of tax employees pay depends on how much they make—a higher income results in higher taxes. Income tax rates are based on employees’ Withholding Allowance and Exemption Certificates (Form MW-4). 

Montana has a reciprocity agreement with North Dakota. Montana residents who earn income in North Dakota pay taxes in Montana. Likewise, North Dakota residents earning wages in Montana pay taxes in their home state. North Dakota residents are required to fill out a Montana MW-4 form.

There are many factors that determine the exact amount employees will pay, including pay frequency, the employee’s filing status and wages, and allowances and exemptions claimed by the employee on their MW-4. You can calculate the amount of Montana withholding tax in one of two ways:

• Wage bracket table method: This is the easiest of the two methods. Using the withholding tax tables provided by the Department of Revenue (links below), you determine the income tax withholding amount based on the factors mentioned above. 
• Formula method: This method requires more calculations and is necessary for computerized payroll systems that calculate individual income tax. Using the applicable formula (links below), you enter the payroll period, employee’s filing status, gross pay, allowances, deductions, and exemptions. The results will match the wage bracket table method. 

The Montana Department of Revenue publishes tables and formulas for each tax year. You can download the 2024 guide from the DOR’s website. The website also contains helpful tax resources, including information about rate and filing changes and definitions for many of the terms you’ll come across in your tax documents. 

Navigating state payroll tax laws and calculating tax withholding can be challenging, especially if you have employees in multiple states. Rippling’s payroll software eases the burden. Rippling calculates all your taxes and pays them automatically for you. It also submits the correct tax forms to the right agencies, ensuring you remain compliant with federal, state, and local laws. And if you need assistance with registering and maintaining your state tax accounts, Rippling’s PEO is the perfect solution, automating one more part of your payroll process.

Payroll tax due dates in Montana

Montana has different due dates for its state payroll taxes. Due dates for state income tax depend on your payroll and how much you withhold. All new withholding accounts are set to a monthly schedule and may change based on payroll. If a due date falls on a weekend or holiday, payment is due on the next business day. Failure to file or withhold taxes will result in penalties and interest. The current penalty is 1.5% per month on the unpaid tax, not exceeding 15% of the tax due. On top of that, late payments are subject to interest at a rate of 9.25%.

Montana employers with 20 or more employees in any quarter of the previous calendar year and third-party administrators must file their unemployment insurance reports quarterly and electronically. If the due date falls on a holiday or weekend, the reports are due on the next business day. Employers who haven’t filed by the time rates are calculated in December will be assigned a penalty rate of 50% higher than the computed rate.

How to submit payroll taxes in Montana

We’ve looked at Montana’s payroll taxes and deadlines. Now comes the next step—paying them. You have a few options in Montana, including electronic or mail payments. Let’s take a closer look. 

Withholding tax filing options

There are several methods for filing your withholding taxes. Employers must file as determined by their payment schedule. Here’s how.

Submit withholding taxes online

Submitting online is the easiest method, ensuring payments are recorded quickly and correctly.

With Montana’s TransAction Portal (TAP), employers can view, file, and pay taxes online. If you already have a tax account but require online access, you can set that up through the TAP website. You can also set up a new tax account through TAP, but you’ll need to have your federal Employer Identification Number (EIN) or Secretary of State Identification Number (SOS ID) on hand. With TAP, you can pay with an e-check, credit, or debit card. Note that a small fee applies when using debit or credit cards. 

It’s a different process if you want to pay with ACH credit. You’ll need to transfer payment to the Department of Revenue. Visit the DOR website for additional details.

Submit withholding taxes by mail 

To submit your filings by mail, send the required paper forms to: 

Montana Department of Revenue
PO Box 5835
Helena, MT
59604-5835

To mail a check, download and fill out an MW-1 payment voucher with your name, address, EIN, account ID, pay period, and amount paid. Mail the check and voucher to: 

Montana Department of Revenue
PO Box 6309
Helena, MT 
59604-6309

Remember, you must make payments totaling more than $500,000 electronically.

Unemployment insurance filing options

Submit UI taxes online 

Employers with 20 or more employees must file UI taxes online. Montana’s UI eServices for Employers provides a simple electronic way to manage your unemployment insurance taxes. You can: 

• Register your business
• File and pay your quarterly reports
• Review and respond to requests for information
• Receive information about your account, including your rate notice and benefit claims
• File a redetermination or appeal
• Upload documentation and securely communicate with the Unemployment Insurance Division

Signing up is a two-step process. Before enrolling in UI eServices, you’ll have to set up an account with Montana’s access management system, Otka. You can find instructions on the website.

Submit UI taxes by mail

Employers who aren’t required to file electronically (those with 19 or fewer employees) may file by mail. First, you’ll need to request a quarterly wage report and payment voucher, Form UI-5, from the Unemployment Insurance Division—Contributions Bureau. After filling out the form, submit it and the voucher with payment to the address on the form.

Employers have several options for making unemployment tax payments:

• Cash, check, or money order (include the payment voucher) 
• Automated clearing house (ACH) debit
• ACH credit
• Credit card

Rippling’s full-service payroll software

Are you looking for an even easier way to settle your payroll taxes online? Rippling’s payroll software is so powerful that it practically runs itself. Automate compliance tasks and ensure timely and accurate submissions of federal, Montana state, and local payroll taxes to the right authorities with Rippling. 

FAQs about Montana payroll taxes

Are there local tax laws in Montana?

No. Montana doesn’t have any local income tax laws.

Can your tax returns be audited in Montana?

Yes. The Montana Department of Labor and Industry (unemployment insurance tax) and the Montana Department of Revenue (withholding tax) can audit employers to ensure compliance. 

Are nonprofit organizations subject to payroll taxes in Montana?

Yes. Nonprofit organizations with employees are subject to payroll taxes in Montana. For Montana unemployment insurance tax, nonprofits must register with the Department of Labor and Industry. They can elect the type of account they wish to have—experience-rated, where the contributions are based on the state’s tax rates, or reimbursable, where the nonprofit must reimburse benefits charged to their UI account.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.