Montana Payroll Tax Guide (2026)
House Bill 337 cut Montana’s top income tax rate to 5.65% for 2026, unemployment insurance sits on Schedule 1 with an average rate of 0.95% on the first $47,300, and the state minimum wage stepped up to $10.85 on 1 January 2026.[6]
Montana payroll at a glance
Montana runs two state payroll taxes: graduated income tax withholding taken from employee pay, and unemployment insurance contributions plus an Administrative Fund Tax that employers pay entirely on the first $47,300 of wages.[6]
What changed for Montana payroll in 2026
Six items moved for Montana employers this year. Anything below is what have changed since the 2025 tables, so a rate card carried over from last year will be wrong in at least one place.
2026 Montana payroll tax calculator
Enter one employee’s annual gross wages to see what the employer owes, what comes out of the paycheque, and the true cost of employment.
Employer pays
Withheld from the employee
State income tax withholding is not included above: it depends on the employee’s Form MW-4, Montana Employee’s Withholding Allowance and Exemption Certificate and filing status, so it cannot be estimated from gross pay alone.
Payroll tax rates & the nexus question
Montana runs three state payroll taxes. The table below is the whole state layer for 2026.[6]
The state payroll taxes
| Tax | Paid by | 2026 rate | Wage base |
|---|---|---|---|
| UI | Employer | 0.00%–6.12%; 1.00% to 2.00% new | $47,300 |
| Administrative Fund Tax | Employer | 0.18% | $47,300 |
| Income tax withholding | Employee | 4.70%–5.65% | No limit |
The 2026 rate schedule is Schedule 1, with an average rate of 0.95%. Eligible employers sit in rate classes 1 through 10 and pay 0.00% up to 1.22%. Deficit employers pay 2.72% up to 6.12%. New employers are rated by industry, from 1.00% for manufacturing, utilities, wholesale, retail and finance, insurance and real estate, up to 2.00% for construction and unclassified employers. The 47,300 dollar wage base is 80% of the 2024 average annual wage of $59,106.64, rounded to the nearest $100.[6]
Supplemental wages have their own rate. Bonuses, commissions and other supplemental payments are withheld at 5.00% when paid separately from regular wages. That is a state rate only; federal supplemental withholding is a separate 22% layer.[1]
Who has to register
Total annual payroll of $1,000 or more in the current or preceding calendar year, or acquiring a business that is already subject to Montana unemployment insurance.[6] Income tax withholding is administered separately by Montana Department of Revenue, so most employers end up with two state account numbers, not one.
Multistate and remote employees
When an employee works in more than one state, the four-part test below decides which state the wages are reported to. The tests run in order: you stop at the first one that gives an answer.
- 1. Localisation of service→
- 2. Base of operations→
- 3. Place of direction & control→
- 4. Employee’s residence
One remote employee is usually enough. A single person working from home in Montana generally creates an obligation to register and report wages here, even if the business has no office, property or customers in the state.
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Ask a Payroll SpecialistRegistration & return filing
Registration is online and free. The unemployment account and, where one exists, the withholding account are opened separately and carry different numbers.[6]
How to register
- Cross the wage threshold→
- UI eServices for Employers at uieservices.mt.gov→
- Receive account number→
- annual unemployment insurance contribution rate notice, issued with the Rate Explanation insert that carries the year’s rate schedule and wage base→
- File & deposit online
Total annual payroll of $1,000 or more in the current or preceding calendar year, or acquiring a business that is already subject to Montana unemployment insurance.[6]
Deposit schedule
Your schedule is set from what you withheld during the lookback period of 1 July to 30 June. Withhold $1,199 or less and you pay annually by 31 January. Withhold 1,200 to $11,999 and you pay monthly by the 15th of the following month. Withhold $12,000 or more and you move to the accelerated schedule, which follows the federal semi-weekly deposit rules. New withholding accounts start on the monthly schedule.[1]
Returns, reports & due dates
| Form | What it is | Due |
|---|---|---|
| Quarterly wage and contribution report, Form UI-5 | Quarterly unemployment return | April 30, July 31, October 31, January 31 |
| Form MW-1, the Montana Withholding Tax Payment Voucher, for periodic payments, and… | Income tax withholding returns | Your schedule is set from what you withheld during the lookback period |
| Annual reconciliation | Year-end withholding reconciliation | January 31 |
| Form 941 | Federal quarterly return | Last day of the month after quarter end |
| Form 940 | Federal unemployment, annual | January 31 |
| New hire report | Report of newly hired employees | Within 20 days of start date |
Quarterly unemployment returns are due April 30, July 31, October 31, January 31. A return filed one day late is delinquent, and in most states the penalty attaches to the return, not the payment.[6]
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Subject wages vs. exempt payments
Not every dollar an employee receives is a taxable wage. The split below governs what goes into the unemployment wage base and what is reported at year end.[6]
Subject wages
- Salaries, hourly pay, overtime and piece rates
- Commissions, bonuses and incentive pay
- Most cash tips reported by the employee
- Vacation, holiday and paid sick leave when taken as wages
- Severance and payments in lieu of notice
- The cash value of meals and lodging provided as compensation
- Employer contributions to a non-qualified deferred compensation plan
Not subject
- Reimbursements of genuine business expenses under an accountable plan
- Employer contributions to a qualified retirement plan
- Employer-paid premiums for accident and health insurance
- Most third-party sick pay after the sixth calendar month
- Payments to a genuine independent contractor
- Workers compensation benefits
The wage base is per employer, per year, not per job. If you hire someone in August who already earned $47,300 elsewhere, your unemployment clock still starts at zero. The one exception is a successor employer taking over an existing payroll, who inherits the wages already paid.
Glossary of key terms
- Taxable wage base
- The slice of each employee’s annual pay that unemployment tax is calculated on. In Montana that is $47,300 for 2026. Earnings above it are still wages, they are simply no longer taxed for unemployment.
- Experience rating
- The method Montana Department of Labor and Industry, Unemployment Insurance Division uses to set each employer’s own unemployment rate from its history of claims. Employers with fewer charged claims move down the schedule; those with more move up.
- New employer rate
- The rate assigned before an employer has enough history to be experience rated. It normally applies for two to three years, then the account moves onto the experience schedule.
- Form MW-4, Montana Employee’s Withholding Allowance and Exemption Certificate
- The state withholding certificate. It sets how much income tax comes out of each cheque and is filed with the employer, not with Montana Department of Revenue.
- Reserve account
- The running balance of contributions an employer has paid in, less the benefits charged against it. The ratio of that balance to taxable payroll is what drives the assigned rate.
- Successor employer
- A business that acquires another’s payroll may inherit both its experience rate and the wages already paid toward the wage base for the year. Getting this wrong is a common acquisition error.
- Localisation of service
- The first of four tests deciding which state a multistate employee’s wages are reported to. If substantially all the work is in one state, that state wins and the remaining tests are never reached.
- FUTA credit reduction
- A reduction in the 5.4% federal unemployment credit applied to states that have carried an outstanding federal loan for two or more consecutive Januaries. It raises the effective FUTA rate and is settled each November.
- Supplemental wages
- Bonuses, commissions, awards and similar payments made outside the regular payroll cycle. Many states set a separate flat withholding rate for them.
Montana payroll tax, layer by layer
Federal tax applies everywhere and is the larger number. The state layer is what changes when you cross a border.
Layer 1: Federal
| Tax | Rate | 2026 base |
|---|---|---|
| Social Security | 6.2% each side | $184,500 |
| Medicare | 1.45% each side | No limit |
| Additional Medicare | 0.9% employee only | Over $200,000 |
| FUTA, standard | 0.6% net | $7,000 |
| Federal income tax | Per Form W-4 | No limit |
Montana has no FUTA credit reduction for 2026, so the standard 0.6% net rate applies, $42 per employee. The final list is not published until 10 November 2026.[14]
Layer 2: State
| Tax | Rate | 2026 base |
|---|---|---|
| UI, new employer | 1.00% to 2.00% | $47,300 |
| UI, experienced | 0.00%–6.12% | $47,300 |
| Administrative Fund Tax | 0.18% | $47,300 |
| Income tax, standard | 4.70%–5.65% | No limit |
| Income tax, supplemental | 5.00% | No limit |
Layer 3, county & city: no payroll tax, but a wage floor
No county or city in Montana levies its own payroll or income tax withheld by employers. The local layer shows up as minimum wage, not as tax.[9]
The state minimum wage is $10.85 an hour, effective 2026-01-01. The tipped cash wage is $10.85. No local ordinance sets a higher floor. One statewide rate applies and no Montana city or county sets its own minimum wage. Montana allows no tip credit, no meal credit and no training wage, so tipped staff must receive the full $10.85 in cash wages before tips. A business not covered by the Fair Labor Standards Act with gross annual sales of $110,000 or less may pay $4.00 an hour, but any employee covered by federal law still gets the higher of the state or federal rate. Montana recalculates the rate each year from the August CPI-U and publishes the new figure no later than 30 September, effective the following 1 January. The 1 January 2026 rate reflects a 2.92% increase.[9]
Overtime exemption is a separate test. A salaried employee is exempt from overtime only above $35,568 a year ($684.00 a week) federal FLSA, and only if the duties test is also met. Paying a salary is not by itself enough.[13]
Montana payroll FAQs
Montana lets you handle supplemental wages three ways. You can add the supplemental payment to the regular wages for the current payroll period, add it to the regular wages of the last preceding payroll period in the same calendar year, or withhold a flat 5% of the supplemental wage. Pick one method and apply it consistently.
Yes. The Administrative Fund Tax is a separate assessment paid by all employers subject to Montana unemployment insurance and it is due with the quarterly wage report. The 2026 rate is 0.18% of taxable wages, dropping to 0.13% for employers in eligible rate classes 01 and 02.
Montana looks at what you withheld between 1 July and 30 June. Up to $1,199 puts you on the annual schedule with payment due 31 January. From 1,200 to $11,999 puts you on monthly, due the 15th of the following month. At $12,000 or more you move to the accelerated schedule and follow the federal deposit timing, and new accounts begin on monthly.
New employer rates are set by industry for 2026, running from 1.00% for manufacturing, utilities, wholesale, retail and finance, insurance and real estate, up to 2.00% for construction and unclassified employers. You pay that rate on the first $47,300 per worker, plus the Administrative Fund Tax of 0.18%.
No. Montana allows no tip credit, no meal credit and no training wage. A tipped employee must be paid at least $10.85 an hour in cash wages for 2026 and keeps tips on top of that. Overtime is still owed at one and a half times the regular rate after 40 hours in a workweek.
House Bill 337 lowered the top marginal ordinary income tax rate to 5.65% and widened the brackets for tax year 2026, and it raised the Montana earned income tax credit to 20% of the federal credit. The Department of Revenue reissued the employer guide in November 2025 with tables for use from 1 January 2026, so update your payroll tables rather than carrying 2025 forward.
$47,300 per employee per calendar year. Once an employee reaches that in wages from you, no further unemployment tax is due on that employee for the rest of the year. The count restarts on 1 January and does not carry over from a previous employer.
$10.85 an hour. No local ordinance sets a higher rate. The tipped cash wage is $10.85.
April 30, July 31, October 31, January 31. A return is delinquent the day after the deadline even if the tax itself was paid on time, so file the return whether or not you can pay.
Sources & methodology
- Montana Department of Revenue – Wage Withholding Tax
- Montana Department of Revenue – Montana Employer and Information Agent Guide with Montana Withholding Tax Tables, V4 November 2025
- Montana Department of Revenue – Withholding Tax Accounts
- Montana Department of Revenue – Montana Employer and Information Agent Guide (publication page)
- Montana Department of Labor and Industry, Unemployment Insurance Division – Schedule of Contribution Rates
- Montana Department of Labor and Industry, Unemployment Insurance Division – 2026 Rate Schedule and Taxable Wage Base (Rate Explanation)
- Montana Department of Labor and Industry, Unemployment Insurance Division – Unemployment Insurance Employer Handbook
- Montana Department of Labor and Industry, Employment Standards Division – Montana’s Minimum Wage
- Montana Department of Labor and Industry – 2026 Montana Minimum Wage Determination Letter
- Montana Department of Labor and Industry – 2026 Montana Wage and Hour Poster
- U.S. Department of Labor, Wage and Hour Division – State Minimum Wage Laws (updated July 1, 2026)
- U.S. Department of Labor, Employment and Training Administration – Significant Provisions of State Unemployment Insurance Laws, January 2026
- U.S. Department of Labor, Wage and Hour Division – Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer and Outside Sales Employees
- U.S. Department of Labor, Employment and Training Administration – FUTA Credit Reductions
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