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Monday, June 11, 2018

Continue Using your 2017 Form W-4 for Montana Withholding

Although the Tax Cuts & Jobs Act has significantly changed the federal tax code, the Montana Department of Revenue has not announced any major reform.  Many employers have recently requested employees to complete the new 2018 W-4 but if you've made changes in your withholding allowances to reflect federal tax changes, it could have an undesirable impact on your state withholding. The below is information from the MT Dept of Revenue website with advice to employees and employers for handling MT income tax withholding.  

We recommend that employees continue to use the number of allowances calculated on their 2017 (or older) Form W-4 for Montana withholding. A newly hired employee should also use the 2017 federal Form W-4 to calculate the number of allowances for Montana.

The IRS recently released a new federal Form W-4, Employee’s Withholding Allowance Certificate, for 2018 to reflect the recent federal tax reform provisions. As a result, employees may revise the number of federal allowances on the new Form W-4, which will reduce the tax withheld from their wages for federal purposes. Montana requests that employees keep using the 2017 federal Form W-4 because the recent federal tax law changes have no impact on the number of exemptions or the amount of standard deductions a taxpayer may claim on the Montana return. Therefore, there is no related reason to change the number of allowances for Montana withholding purposes.

When calculating their withholding allowances, an employee should further consider the following:

  • Montana does not allow the federal child tax credit nor the exemption from withholding.
  • If more than 10 allowances are reported on an employee’s federal Form W-4, the employer must continue to submit the form to the Department of Revenue for review. If the department determines it is not correct number of allowances for state withholding purposes, we will contact the employee and employer with the revised number. If necessary, employees can then contact the department to justify an increased amount of allowances.
We recommend consulting with a tax preparer to determine if your state taxes are impacted by any of the federal tax changes.