Employer's Guide to Unemployment Insurance Tax in Montana

If your small business has employees working in Montana, you'll need to pay Montana unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Montana, state UI tax is just one of several taxes that employers must pay. Other important employer taxes, not covered here, include federal UI tax, and state and federal withholding taxes.

Different states have different rules and rates for UI taxes. Here are the basic rules for Montana's UI tax.

Register With the Department of Labor & Industry

As a Montana employer subject to UI tax, your small business must establish a Montana UI tax account with the Montana Department of Labor & Industry (DLI). You can register for an account with DLI either online or on paper. Once registered, you'll be issued a UI account number. To register online, use the DLI's UI eServices for Employers. To register on paper, complete Form UI-1, Montana Unemployment Insurance Employer Registration. Blank forms are available for download from the Printable Forms section of the DLI website. There is no fee to register your business with the DLI.

Note: To establish your Montana UI tax account, you'll need a federal employer identification number (EIN). You can apply for an EIN at IRS.gov. Generally, if you apply online, you will receive your EIN immediately.

Rules for Unemployment Insurance Tax Liability

As a for-profit employer in Montana, you generally are liable for state UI taxes if you meet one of the following criteria:

• your total annual payroll for the current or preceding calendar year equals or exceeds $1,000
• you acquired all or part of a business already subject to Montana Unemployment Insurance, or
• you are subject under the Federal Unemployment Tax Act (FUTA)

Different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.

One piece of good news is that state UI tax payments generally can be credited against your FUTA taxes.

Wage Base and Tax Rates

UI tax is paid on each employee's wages up to a maximum annual amount. That amount, known as the taxable wage base, increases slightly each year in Montana. In recent years, it has been around $30,000. Check the DLI website for the current wage base.

The state UI tax rate for new employers, also known as the standard beginning tax rate, also can change from one year to the next. Unlike other states, in recent years the rate has not been a set percentage for most businesses. Instead, it's based on an "industry average," meaning it will vary depending on what kind of business you have. As a new employer, you'll be subject to a rate based on the industry average for the first three years. The rate can be different for each of those years.

Established employers are subject to a lower or higher rate than new employers depending on an "experience rating." This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits. In recent years, minimum rates have been around .5% and maximum rates a little over 6%.

File Scheduled UI Tax Reports and Payments

In Montana, UI tax reports and payments are due a month after the close of each calendar quarter. In other words, reports and payments must be postmarked by the following dates:

If the due date is on a weekend or holiday, the next business day becomes the date the quarterly reports and payment must be postmarked.

You can file your reports and payments online or on paper. To file and pay online, use the DLI's UI eServices for Employers website. You can pay online by Automated Clearing House (ACH) or credit card. (Credit card payments incur an additional fee.) The DLI prefers that employers file and pay online. To file on paper, use Form UI-5,Quarterly Wage Report. You can download blank forms from the Printable Forms section of the DLI website.

Post a Notice (Poster)

You are required to post a notice (poster) regarding your unemployment insurance coverage in a conspicuous place for all employees. You must call the DLI to obtain a copy of this poster that is specific to your business. Go to the Posters section of the DLI website for more information.

Do Not Misclassify Employees as Independent Contractors

Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it's important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.

Using Payroll Service Companies

You may decide that it's easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.

Additional Information

This article touches on only the most basic elements of Montana UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DLI websites for the latest information. The DLI also has a detailed Employer Handbook that is updated each year. You can download a copy from the Employer Resources section of the DLI website. In addition to state UI tax, employers have other responsibilities not covered in this article such as federal UI tax, state and federal withholding taxes, and required reporting of new hires. You can get more information about other small business tax issues in other articles on Nolo.com.