Montana Payroll Taxes Explained (UI, Withholding, Workers' Comp)
Payroll in Montana means running federal taxes (income tax withholding, FICA, FUTA) plus a specific set of state obligations. Miss any of them and you get letters from either the Department of Revenue, the Department of Labor & Industry, or the Montana State Fund. Here's the whole picture.
Federal payroll taxes (baseline)
Federal income tax withholding (based on W-4).
Social Security: 6.2% employee + 6.2% employer on the first $168,600 (2025 base; adjusts annually).
Medicare: 1.45% employee + 1.45% employer with no cap; additional 0.9% employee on wages over $200,000.
FUTA: 0.6% employer on the first $7,000 per employee (after Montana state UI credit).
Montana state income tax withholding
Montana requires withholding on wages paid to Montana residents and to nonresidents for work performed in Montana. Rates are graduated up to 5.9% (2025).
Register through the Montana Department of Revenue's TransAction Portal (TAP). File Form MW-3 annually and remit withholding on the same schedule as your federal deposits (usually monthly for most small employers).
Unemployment Insurance (UI)
Every Montana employer pays state UI to the Department of Labor & Industry. New employers pay an assigned rate (typically ~1.7%–2.4% depending on industry) on the first $45,100 of wages per employee (2025 wage base).
Your rate is 'experience-rated' after a few years — layoffs raise it, no layoffs lower it. Manage this actively; a bad rate costs real money.
Workers' compensation insurance
Required for essentially every Montana employer with employees. Most small businesses get coverage through Montana State Fund; some qualify for private carriers.
Premium is per $100 of payroll, with the rate driven by job classification. Office rates are cheap (well under $1 per $100); roofing and construction rates are expensive ($10+ per $100 in some classes).
Report payroll accurately by class code. Misclassifying to a cheaper code is fraud.
New employer registration checklist
Get a federal EIN (IRS).
Register for Montana withholding via TAP (Department of Revenue).
Register for UI via UI eServices (Department of Labor & Industry).
Get workers' comp coverage through Montana State Fund or a private carrier.
Set up your payroll provider (Gusto, QuickBooks Payroll, ADP, etc.) with all four registrations before running your first check.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.