Montana Tax and Labor Law Summary

Nanny tax and payroll requirements for Montana families

Updated

Families hiring an in-home caregiver in Montana usually have lots of questions. That's where this guide will come in handy. We break down everything you need to know to comply with every household employment requirement.

 

WORKER CLASSIFICATION

When a family hires someone to perform duties in or around their home, they are considered a household employer. The IRS views the worker whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. as an employee of the family in nearly every case. Misclassifying an employee as an independent contractor (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.

 

MONTANA HOUSEHOLD EMPLOYMENT TAX RESPONSIBILITIES

Household employers have four primary tax responsibilities. These are sometimes referred to as the Montana nanny tax obligations:

 

1. Withhold Social Security and Medicare taxes from their employee's paycheck each pay period. Federal and state income taxes should be withheld based on the employee's selections on Form W-4.

* It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.

 

2. Pay the employer's portion of Social Security and Medicare, as well as federal and Montana unemployment insurance taxes (FUTA and SUTA). Montana household employers are also required to pay a small Administrative Fund tax.

Good news! There are some tax breaks for dependent care that can help offset these employer taxes. For an estimate of your employer costs, your tax breaks and your employee's take-home pay, give us a call at (888) 273-3356.

 

3. File tax forms with the Montana Department of Revenue, typically on a monthly basis, with the Montana Unemployment Insurance Division, typically on a quarterly basis, and with the IRS in April, June, September and January. With these filings, employers remit (pay) the employee taxes withheld and the employer taxes accrued.

 

4. At the end of the year, prepare Form W-2 and distribute to each employee, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file a Schedule H with your personal income tax return.

 

MONTANA LABOR LAW REQUIREMENTS

The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-exempt workers in all 50 states are covered by the rules and protections of the FLSA. Montana may supplement federal law with additional state and municipal labor laws.

 

Minimum Wage

Minimum wage in Montana is currently $8.50 per hour.

 

Montana Overtime Requirements

Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work performed. The FLSA requires domestic workers be protected by overtime laws. The requirements for Montana household employers are as follows:

  1. The standard workweek is defined as 40 hours in a 7-day period.
  2. Montana employees should be paid at least 1.5 times the regular hourly rate (time-and-a-half) for all hours worked over 40 in a workweek. 
  3. Overtime compensation is not required for live-in employees.
  4. Overtime is not required to be paid when work is performed on a holiday.


Mileage Reimbursement

The current federal mileage reimbursement rate is 58 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives their own vehicle while on the job. Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.

Note: Miles driven while commuting to and from the jobsite are not considered on-the-job. If the employer reimburses the employee for commuter mileage, it is considered taxable compensation.

 

INSURANCE FOR MONTANA HOUSEHOLD EMPLOYERS

 

Workers' Compensation Insurance 

Household employers in Montana are not required to carry a workers' compensation insurance policy. However, we recommend obtaining coverage because it assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer regardless of fault. As part of the HomePay setup process, we can guide you to a convenient, affordable solution.


Unemployment Insurance 

Montana unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This insurance is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund and unemployment benefits are distributed from the fund to employees who are let go from their job due to no fault of their own. The Montana Unemployment Insurance Division (UID) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by the UID may trigger a future tax rate increase for the employer.

 

Health Insurance 

Household employers in Montana are NOT required to pay for their employee's health insurance. However, there is a tax incentive to do so. Families with only 1 employee can make contributions toward their employee's health insurance premiums and treat the amount as non-taxable compensation. In this scenario, neither the employee nor the employer are required to pay any taxes on that portion of the compensation.

Note: Employers with 2 or more employees must set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit. Visit our health insurance page for more information about these options.

 

 

 

The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.

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