PREVIOUS PAGE | NEXT PAGE
Full Printable Handbook PDF

 

SECTION 3: REPORTABLE WAGES AND EMPLOYMENT

What do I have to report as wages on my Unemployment Insurance quarterly wage report?
The term wages is defined in section 39-51-201 (23)(a) MCA . "Wages means all remuneration payable for personal services, including the cash value of all remuneration payable in any medium other than cash. The reasonable cash value of remuneration payable in any medium other than cash must be estimated and determined pursuant to rules prescribed by the department." So, if you pay with livestock, living quarters, material goods or other non-cash payments, you must report the market value as wages.

Are all types of employment and all payments made to my employees reportable as wages?
Not all payments for personal services are taxable for Montana Unemployment Insurance purposes. The chart below lists many types of employment and payments and whether or not they are taxable.

Payroll taxation and the application of the various statutes, Administrative Rules, and Supreme Court decisions can be very complex. This handbook is not meant as a replacement or substitute for them. For more information on any of these items, call a UI Field Representative listed on page 31 of this publication.

MONTANA UI WAGE & EMPLOYMENT TAX CHART

Special Classes of Employment and
Special Types of Payments

Unemployment Insurance
Tax Treatment

Advances against future earnings.

Taxable, when paid

Agricultural Labor.

Taxable if total cash wages exceed $20,000 in any quarter or if employ 10 or more workers on 20 different days in 20 different weeks in calendar year.

Aliens, nonresident:

 
1. Working under section 101(a)(15) of the Immigration and Nationality Act, as amended, for the purposes identified in 8 USC 1101(a)(15) (F), (H)(ii)(a), (J), (M), or (Q). Exempt
2. Working under any other condition or visa not listed above. Taxable

Aliens, resident: Service performed in Montana

Taxable

Annuities: Payments made by the employer into a fund for retirement or death benefits, under a plan offered to all employees or a class or classes of employees.

Exempt

Back Pay paid as a result of a dispute related to employment

Taxable

Bonuses.

Taxable

Cafeteria plan deductions under IRC Section 125.

Taxable

Commissions: (See also "Salespersons").

Taxable

Corporate Officer Payments: Corporate officers performing a service for the corporation (includes subchapter S corporations) are employees. (Also see Offices and Profit Distribution).

Taxable

Cosmetologists or barbers: Who are licensed, contracts with a shop, is free from control and direction of the owner, owns or leases equipment, receives payment from the clientele, and acknowledges in writing that their work is not covered by UI.

Exempt

Deceased worker: Wages paid to beneficiary or estate after worker's death.

Taxable

Deferred Compensation: (see Retirement/Pension plans)

Taxable

Dependent care assistance programs under Section 129 of IRC or other assistance provided for dependent care.

Taxable

Director Fees: Customary and reasonable fees paid to directors of a corporation for attending meetings of the board of directors.

Exempt

Special Classes of Employment and
Special Types of Payments

Unemployment Insurance
Tax Treatment

Dividends.

(see Profit Distribution)

Employee Benefit Plans, Perks furnished/paid by the employer.

 

1. Retirement, sickness or accident disability, medical, hospitalization or death benefits. Exempt
2. No additional cost service, where the benefit provided has no monetary impact to the employer, such as lift tickets provided by a ski lodge to its employees. Exempt
3. Discounts on merchandise or services, or other benefits. Taxable - at cash value

Employee Business Expense Reimbursement:

 

1. Actual expenses, if documented and entered separately in business records. Exempt*
2. Non-receipted travel expenses at the rate allowed for state employees. Exempt*

Equipment Rental Payments:

1. Payment for rental of equipment owned by the employee that is necessary for the employee to perform job. Exempt
2. Hand tools commonly used in the employee's trade. Taxable
3. Vehicle used only to transport worker to and from job site. Taxable

Family Employees:

 

1. Services performed by a spouse or dependents (for whom an income tax exemption may be claimed) of a sole proprietor or limited liability company that is taxed as a sole proprietor for federal tax purposes. Exempt
2. Services performed by a spouse or dependents of an officer of a corporation or association, of partners in a partnership, or members of a limited liability company taxed as a partnership or corporation. Taxable (unless all partners are parents of the dependent).

Foreign Government or International Organization: Working for foreign government or organization with service performed in Montana.

Taxable

Foreign service by Montana citizens: For foreign affiliates of American employers and other private employers.

Taxable, if working for American employer (unless in a country in which the US has an agreement for UI)

Gifts.

Taxable

Gratuities.

(see Tips)

Holiday Pay.

Taxable

Home workers (industrial, cottage industry). Individuals who perform services at their homes, often paid on a piecework basis.

Taxable

Hospital employees:

 

1. Interns Taxable
2. Patients Taxable

Household employees:

 

1. Domestic service in private homes, college clubs, fraternities, and sororities. Taxable if total cash wages are $1,000 or more (for all household employees) in any quarter in the current or preceding calendar year.
2. Companionship services (as defined in 29 CFR 552.6) or respite care (because of age or illness).

Exempt - if employed by a family member or legal guardian. (You may request voluntary coverage.)

Special Classes of Employment and
Special Types of Payments

Unemployment Insurance
Tax Treatment

Income Tax Withholding: Withholding from an employee's wages for federal and/or state income taxes. Taxable
Insurance for employees:  
1. Accident and health insurance premiums paid by the employer into a qualified plan for the employee or the employee's immediate family. Exempt
2. Life insurance premiums paid by the employer for the employee or the employee's immediate family. Exempt
Insurance agents/salespeople. Exempt - if paid solely by commission without guarantee of minimum earnings.
Loans. Taxable unless the employee is to repay the loan under a written schedule agreed to by the employer and the employee.
Limited Liability Companies (LLC):(effective 1/1/2008)  
1. Payments to member(s) of an LLC that files a federal income tax return as a sole proprietor on Schedule C or as a partner on Form 1065. Exempt
2. Payments to member(s) of an LLC that files a federal income tax return as a corporation on Form 1120 or as a subchapter S Corporation on Form 1120-S. Taxable
See "Family Employees" section for tax treatment of LLC spouse or dependents.  
Meals. (see Room and Board)
Mileage: Allowable amount up to the IRS mileage rate for current year provided the employee furnishes the vehicle. Exempt – click here for allowable reimbursement
Newspaper employees:  
1. Carriers who delivers newspapers singly or in bundles and have acknowledged the service is not covered by UI. Exempt
2. Freelance correspondents who submit articles or photographs for publication and are paid by the item, and acknowledge the service is not covered by UI. Exempt
Non-cash payments:  
1. For household work, agricultural labor, and service not in the course of the employer's trade or business. Taxable - if the employer meets subjectivity requirements
2. Other non-cash payments for services performed. Taxable at the cash value.
Non-profit organizations: (Wages paid by). Taxable if employer meets subjectivity requirements
Officers or shareholders of a Corporation:
Distributions and other payments by a corporation to a corporate officer or shareholder to the extent the amounts are reasonable compensation for services to the corporation by the officer or shareholder.

Taxable
Officials: Services performed by an individual as an official, including timer, referee, umpire, or judge, at an amateur athletic event. Exempt
Partners or sole proprietor: Distribution of profits to general or limited partners of a partnership or to a sole proprietor. Exempt
Profit Distribution:  
1. Distribution of profit to sole proprietors and partners. Exempt
2. Payments distributed to corporate officers or shareholders in lieu of reasonable compensation for services performed, even though designated as profits or dividends. Taxable
Railroads: Employment with any railroad engaged in interstate commerce. Exempt - excludes construction of railroads.

Special Classes of Employment and
Special Types of Payments

Unemployment Insurance
Tax Treatment

Religious Organizations:  
1. Services performed by a duly ordained, commissioned, or licensed minister of a church in a ministerial duty or by a member of a religious order in the exercise of duties required by the order. Exempt
2. Services performed by non-clergy employees. Taxable
Retirement and Pension plans:  
1. Employer contributions to a qualified pension or retirement plan. Exempt
2. Elective employee contributions, salary reductions or deferrals to a 401(k) or any other type of retirement plan. Taxable
Room and Board, Meals, etc. furnished to an employee as part of the terms of their employment. Taxable - must report cash value; minimum value of $130 per week for full room and board; $3 per meal
Salespersons:  
1. Statutory non-employees, including direct sellers and real estate and insurance agents paid solely by commission. Exempt
2. Other salespersons, regardless of method of payment. Taxable
Severance, termination or dismissal pay. Taxable
Sick Pay. Taxable for the first 6 months following the month the employee last worked.
3rd Party Sick Pay:  
1. If the premiums to a 3rd party provider are paid by the employer. Taxable for the first 6 months following the month the employee last worked.
2. If the premiums to a 3rd party provider are paid by the employee Exempt
Social Security Taxes: Deductions from an employee's gross wage for FICA. Taxable
State governments and political subdivisions (employees of):  
1. Salaries and wages of non-elected employees. Taxable
2. Salaries and payments to elected officials. Exempt
3. Election judges. Election judges are individuals who are employed to perform services for state or local governments at election booths in connection with national, state, or local elections. Exempt
4. Payments made into a qualified tax exempt trust for qualifying health care expenses under the Voluntary Employees' Beneficiary Association (VEBA) Act. Exempt
Students, interns, scholars:  
1. Student enrolled and regularly attending classes, performing services for a non-profit or public educational institution. Exempt
2. Full-time student/scholar/intern performing service for academic credit, combining education with work experience as an integral part of the program. Exempt
Tips or gratuities:  
1. Tips or other gratuities received by the employee and documented to the employer. Taxable
2. Allocated tips. Exempt
Vacation: Paid vacation for employee. Taxable
Vehicles: Personal use of a company vehicle. Taxable

Employee expense reimbursements, as noted in the tax chart, are not wages if reimbursement is entered separately in the business records and you have documentation that the expense was incurred while conducting business. Reimbursement may not be based on a percentage of the employee's wage nor can it replace the customary wage for the occupation. The reimbursement must be based on actual, receipted expenses or you may base it upon the amount allowed to state employees. The following are the maximum amounts allowed for non-receipted expenses:

Meal Expenses per day:
 
$23 (in state); $36 (out of state)
Lodging Expenses per day:
 
$12 a night
Mileage Reimbursement:
 
$0.56* per mile
 
*Rate as of January 2013 and is subject to change
 
Mileage reimbursement allowance is equal to federal rate.

Equipment Rental - Payment for rental of equipment owned by the employee are not wages if the equipment is necessary for the employee to perform the job, the employment contract provides for the rental payments, the reimbursement is entered separately in the employer's records and the reimbursement does not replace the customary wage for the occupation. Rental payments for light equipment furnished by the employee may not exceed the reasonable rental value of that equipment. Chain saw rental may not exceed $22.50 per day. Rental payment for heavy equipment, such as semi-tractors and skidders may not exceed 75% of the employee's gross remuneration. Payments made for hand tools commonly used in the employee's trade, and vehicles used only for carrying the worker to and from the job site are wages.

Do I pay UI taxes on workers I consider independent contractors?
It depends. Some employers exclude workers from their reports contending the workers are "independent contractors" and not employees. Court decisions and division rulings support such services to be employment until "freedom from control or direction over performance" is proven and until it is shown the workers are "engaged in an independently established business of their own". UI law defines an independent contractor as “an individual working under an independent contractor exemption certificate provided for in 39-71-417, MCA.”  If you have paid or contemplate paying someone as an independent contractor, the individual should have an independent contractor exemption certificate or you may have to pay UI taxes on the workers’ earnings.  Independent contractors with approved exemption certificates can be found at: mtcontractor.com

The laws and court decisions concerning independent contractors are very complex. If you are unsure, please contact the Independent Contractor Central Unit at (406) 444-9586 or your local field representative listed in the back of this book. You may request the department furnish you with a written determination of which workers, if any, are considered self-employed. The department will investigate the employment relationship before issuing a determination.

Officer Salaries
Officers of corporations are considered employees of the corporation. Payments to or on behalf of officers of a corporation or association for services performed, regardless of the form of payment, are reportable wages, including subchapter S and other closely-held corporations. If fair-market wages were not reported for officers, but distributions, payment of behalf of officers or draws are taken, the Montana Unemployment Insurance Division may reclassify such distributions or a portion thereof as wages to arrive at a fair-market wage for the corporate officers. Failure to comply with appropriate accounting practices for such things as business expense reimbursements, dividends, profit distributions, return of capital or loans may also lead to the reclassification of payments as wages. Administrative Rules of Montana 24.11.2506 has factors used in evaluating reasonable wages.

think

PREVIOUS PAGE | NEXT PAGE