2023 Montana Legislative Roundup – Department of Revenue Encourages Employees to Review Montana Wage Withholding – Tax News You Can Use

January 10, 2024

This article is a part of our 2023 Legislative Roundup series, which brings you updates about changes to Montana  income tax laws made during the 68th Montana Legislature. 

The calculation of Montana wage withholding is changing. Legislation passed in 2021 enacted major changes to Montana’s income tax system, including lower income tax rates. Beginning January 1, 2024, the highest marginal tax rate decreased from 6.75% to 5.9%, and tax rates are now based on the filing status used by the taxpayer on the federal income tax return (Form 1040).

Because of these changes, the department is encouraging employees to review their Montana wage withholding to ensure it accurately reflects what they may owe when they file their 2024 Montana tax return. Having too much withheld means that a taxpayer may get a refund when they file their return, but that they will have less take-home pay during the year; not having enough withheld means they may owe taxes, and possibly penalty and interest, when they file their return. Service industry workers who exempt tips should particularly review withholdings, because as of January 1, 2024, tips are no longer exempt from Montana tax.

The new method for calculating Montana wage withholding will closely resemble the federal method. Employees will no longer use Montana allowances, such as Montana personal and dependent exemptions and the Montana standard or itemized deductions, to calculate the amount of their Montana wage withholding. Instead, the new calculation method will rely on the federal standard deduction amount for the employee’s federal filing status.

Employees may still designate additional amounts to withhold from their paycheck or elect to have a particular amount withheld from their paycheck. Specific exemptions to Montana wage withholding will not change.

Employees may revise their wage withholding by completing the updated Form MW-4.

Note: these changes will be reflected on the 2024 Form 2 when filed in 2025.