The Montana Department of Revenue has released a new state withholding certificate, the ?Form MW-4 "Montana Employee's Withholding and Exemption Certificate, that must be used by new employees starting in calendar year 2019. Current employees (unless claiming exempt from state withholding) may choose whether to submit the new Form MW-4 to their employers or continue using a previously submitted federal Form W-4. (Updates to Montana wage withholding, December 12, 2018.)

Historically, the Department has used the federal Form W-4 for state income tax withholding purposes; however, with the implementation of the federal Tax Cut and Jobs Act (TCJA), the agency determined a state-specific form would best suit Montana taxpayer needs.

Earlier this year, the Department had requested that for calendar year 2018, current and new employees continue to use the number of allowances calculated on their 2017 (or older) Form W-4 for Montana withholding. This was because the federal tax law changes under the TCJA has no impact on the number of exemptions or the amount of standard deductions a taxpayer may claim on the Montana return.

Who should complete new Form MW-4?

Employees should complete Form MW-4 and provide it to their employers, if:

• They are newly hired employees, or
• They claimed for 2018, or plan to claim for 2019, to be exempt from Montana income tax withholding

Current employees are also encouraged to consider completing a new Form MW-4 if their personal or financial situation changes.

The form's instructions state that federal Form W-4 should not be used for the calculation of Montana income tax withholding. However, employees who have already claimed allowances in previous years are not required to submit the new Form MW-4 unless they have claimed an exemption from state income tax withholding.

Employers may, however, want to caution employees that if they do not have sufficient income tax withheld from wages they may be assessed interest and penalties when filing their individual income tax returns.

Department will no longer mail the annual reconciliation form to employers

The Department also announced that it will no longer mail the Montana Form MW-3, Annual W-2 1099 Withholding Tax Reconciliation Return, to employers each year. Instead, the Department encourages employers to submit Forms MW-3, W-2 and 1099 electronically over the Department's TransAction Portal (TAP).

Employers may still choose to file the paper return by downloading it from the Department's website. As we reported previously, 2018 Forms MW-3, W-2 and 1099s with Montana withholding/payments in box 7 are due by January 31, 2019. (EY Payroll Newsflashes Vol. 18, #065, 3-29-2017 and #206, 12-7-2017.)

For more information on Montana withholding, see the Department's website.

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EY Payroll News Flash