Pass-Through Withholding in Montana

Partnerships, S corporations, and disregarded entities must withhold income tax for owners if the owner's share of income is at least $1,000 and the owner is a:

  • Nonresident individual, estate, or trust,
  • Tax-exempt entity administered outside Montana,
  • Foreign C corporation, or
  • Second-tier pass-through entity.

Pass-Through Withholding Tax Rates

The pass-through entity must withhold a percentage of the owner's Montana source income. The rate of tax withheld depends on the type of owner:

  • Nonresident Individuals, Estates, Trusts, and all Second-Tier Pass-Through Entities: 5.9%
  • Foreign C Corporations and Tax-Exempt Entities Administered Outside Montana: 6.75%

Payment Options

You can pay your pass-through withholding tax using:

Withholding Exemptions

The pass-through entity does not need to withhold taxes for:

Due Dates

Pass-through withholding tax is due at the same time as your Montana Information and Composite Income Tax Return, not including extensions:

  • Disregarded Entity: Based on Owner
  • Partnerships: March 15
  • S Corporations: March 15

Note: If a due date falls on a weekend or holiday, it will be due on the next business day.

Unique Pass-Through Withholding Situations

A second-tier pass-through entity receiving a MT Schedule K-1 showing some amount of pass-through mineral royalty withholding may either use these taxes as a credit against the taxes it owes on Form PTE or pass these withholding taxes to its owners.

  • The pass-through entity must first allocate the amount of withholding taxes attributable to each owner based on their distributive share of Montana source income.
  • If the owner is a participant in a composite return the entire amount of withholding taxes is applied against the composite tax and the excess may be refunded.
  • If the pass-through entity must withhold a tax on the owner's distributive share of Montana source income and the owner does not have a Form PT-AGR on file, the second-tier pass-through entity may use the first-tier withholding against the pass-through withholding it must calculate on its return.
  • Mineral royalty withholding tax is not creditable if the distributive share of Montana source income attributable to an owner is zero.
  • If the withholding tax calculated at the second-tier level is less than the first-tier pass-through withholding tax claimed by the second-tier pass-through entity, the second-tier pass-through may claim the refund of the excess.

A publicly traded partnership (PTP) as defined in § 7704(b) of the IRC is exempt from the withholding requirement if it agrees to file an annual information return that includes the name, address, and taxpayer identification number for each owner that has an interest in the partnership that results in Montana source income.

Waiver of Withholding for Lower-Tier Entities

If the partnership has a direct or indirect majority interest in a lower-tier pass-through entity, the lower-tier pass-through entity may apply to the department in writing for a waiver of withholding tax on the partnerships distributive share of Montana source income or to approve the Form PT-AGR of a second-tier pass-through entity in which the partnership holds interest.