Effective Jan. 1, 2024, tipped income will become taxable in the state of Montana.
The details:
Under current law, effective through Dec. 31, 2023, tipped income is not considered taxable income for Montana state income tax purposes.
The current version of Montana 15-30-2501 (Montana Individual Income Tax Definitions) states in part:
(b) The term (wage) does not include:
(i) tips and gratuities exempt from taxation under 15-30-2110.
The current version of 15-30-2110 (Montana Adjusted Gross Income) states in part:
“(2) Notwithstanding the provisions of the Internal Revenue Code, adjusted gross income does not include the following, which are exempt from taxation under this chapter:
(f) all tips or gratuities that are covered by section 3402(k) or service charges that are covered by section 3401 of the Internal Revenue Code of 1954, 26 U.S.C. 3402(k) or 3401, as amended and applicable on Jan. 1, 1983, received by a person for services rendered to patrons of premises licensed to provide food, beverage, or lodging.”
As a result of the enactment of Montana Senate Bill 399, both provisions are repealed effective Jan. 1, 2024, resulting in tipped income becoming taxable to employees for Montana state income tax purposes.
Next steps:
Montana employers with tipped employees should notify these employees that, beginning Jan. 1, 2024, tips received will be considered taxable income for Montana state income tax purposes and the appropriate Montana state tax will be withheld as well as the usual federal taxes.
In addition, the Montana Department of Revenue has indicated that it will be updating the Montana Employer and Information Agent Guide with Montana Withholding Tax Tables in Oct. of 2023 and it is recommended that Montana employers review this updated guidance with their legal and/or tax advisors.
Have questions?
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Thank you,
ADP