© 2024 American Payroll Institute, Inc.
Montana Attorney General Opinion Says EWA Products Are Not Loans
The Montana Attorney General (AG) issued an opinion on
earned wage access (EWA) at the request of the Speaker
of the Montana House of Representatives [AG, Opinion No.
2, Vol. 59, 12-22-23]. The AG concluded that EWA products
are not considered loans under state law and do not require
providers to be licensed in the state, provided that certain
conditions are met.
Question asked
The question before the AG was whether an EWA
product meets the definition of consumer loan under state
law, requiring licensure by the Montana Division of Banking
and Financial Institutions or whether it meets the definition
of deferred deposit loan under state law, also requiring a
license issued by the state.
Short answer
The AG concluded that EWA products are not considered
loans, so long as: (1) the products are fully non-recourse
(see below) (2) the products do not condition an income-
based advance on any interest, fees, or other consideration
or expenses and (3) income-based advances are limited to
income already earned by the employee.
Explaining non-recourse
According to the AG opinion, an EWA product is
considered fully non-recourse where the provider obtains
no legal or contractual right to repayment against the
consumer (employee), does not engage in any debt
collection activities regarding any unpaid balance, does not
sell or assign any unpaid balance to a third party, and does
not report non-payment to any consumer credit reporting
agency.
EWA products do not meet state loan definition
The AG decided that EWA products do not meet the
definition of a loan under the Montana Consumer Loan
Act. This is because EWA providers do not possess a right to
repayment for income-based advances.
Also, EWA products grant consumers/employees access
to income that is already earned and are not extending
credit. According to the AG, relying on information from
the Board of Governors of the Federal Reserve, no credit
has been extended because the employee is, in effect,
using the employee’s own money. EWA products do not
temporarily lend money or extend credit, because they
grant an employee access to income the employee is
already entitled to. Therefore, according to the AG, “a no-
cost, fully-nonrecourse EWA product simply has the effect
of changing a worker’s payday.”
EWA products do not condition the advance on any
interest or fees, as loans do under state law. The opinion
explains that state law clearly links the receipt of interest,
fees, consideration, or expenses to providing loans. The
definitions of interest, fees, consideration, and expenses
do not include voluntary tips or ancillary (supplementary)
service charges. If the EWA product does not condition the
amount of the advance, or the advance itself, on payment
of an ancillary service charge, then the charge is not
compensation under the state law.
State Supplemental Wage Tax Rates for 2024
Employees are sometimes paid special or irregular types
of payments in addition to their regular wages. These
payments are classified as “supplemental wages” that often
can be taxed at a flat rate for federal and state income tax
withholding. Examples of supplemental wages include
overtime pay, bonuses, and commissions (see The Payroll
Source®, §6.4-4 for more examples).
Supplemental wages under federal law. Under the
Tax Cuts and Jobs Act (TCJA Pub. L. 115-97), which took
effect January 1, 2018, the optional flat tax on supplemental
wages up to $1 million is 22% (no other percentage is
allowed). The mandatory withholding rate on supplemental
wages exceeding $1 million is 37%. This rate is tied to the
highest income tax rate.
The table that follows provides the 2024 supplemental
wage withholding rate(s) for those states that allow flat
rate withholding from supplemental wages. It is important
to note that rates could change if states update their 2024
withholding tables or state laws.
State Tax Rate State Tax Rate
Alabama 5% Nebraska 5%
Arkansas 4.4% New Mexico 5.9%
California 6.6% 10.23% for stock options and
bonus payments
New York 11.7%
Colorado 4.4% North Carolina 4.6%
February 19, 2024 Volume 26 Issue 4
Montana Attorney General Opinion Says EWA Products Are Not Loans
The Montana Attorney General (AG) issued an opinion on
earned wage access (EWA) at the request of the Speaker
of the Montana House of Representatives [AG, Opinion No.
2, Vol. 59, 12-22-23]. The AG concluded that EWA products
are not considered loans under state law and do not require
providers to be licensed in the state, provided that certain
conditions are met.
Question asked
The question before the AG was whether an EWA
product meets the definition of consumer loan under state
law, requiring licensure by the Montana Division of Banking
and Financial Institutions or whether it meets the definition
of deferred deposit loan under state law, also requiring a
license issued by the state.
Short answer
The AG concluded that EWA products are not considered
loans, so long as: (1) the products are fully non-recourse
(see below) (2) the products do not condition an income-
based advance on any interest, fees, or other consideration
or expenses and (3) income-based advances are limited to
income already earned by the employee.
Explaining non-recourse
According to the AG opinion, an EWA product is
considered fully non-recourse where the provider obtains
no legal or contractual right to repayment against the
consumer (employee), does not engage in any debt
collection activities regarding any unpaid balance, does not
sell or assign any unpaid balance to a third party, and does
not report non-payment to any consumer credit reporting
agency.
EWA products do not meet state loan definition
The AG decided that EWA products do not meet the
definition of a loan under the Montana Consumer Loan
Act. This is because EWA providers do not possess a right to
repayment for income-based advances.
Also, EWA products grant consumers/employees access
to income that is already earned and are not extending
credit. According to the AG, relying on information from
the Board of Governors of the Federal Reserve, no credit
has been extended because the employee is, in effect,
using the employee’s own money. EWA products do not
temporarily lend money or extend credit, because they
grant an employee access to income the employee is
already entitled to. Therefore, according to the AG, “a no-
cost, fully-nonrecourse EWA product simply has the effect
of changing a worker’s payday.”
EWA products do not condition the advance on any
interest or fees, as loans do under state law. The opinion
explains that state law clearly links the receipt of interest,
fees, consideration, or expenses to providing loans. The
definitions of interest, fees, consideration, and expenses
do not include voluntary tips or ancillary (supplementary)
service charges. If the EWA product does not condition the
amount of the advance, or the advance itself, on payment
of an ancillary service charge, then the charge is not
compensation under the state law.
State Supplemental Wage Tax Rates for 2024
Employees are sometimes paid special or irregular types
of payments in addition to their regular wages. These
payments are classified as “supplemental wages” that often
can be taxed at a flat rate for federal and state income tax
withholding. Examples of supplemental wages include
overtime pay, bonuses, and commissions (see The Payroll
Source®, §6.4-4 for more examples).
Supplemental wages under federal law. Under the
Tax Cuts and Jobs Act (TCJA Pub. L. 115-97), which took
effect January 1, 2018, the optional flat tax on supplemental
wages up to $1 million is 22% (no other percentage is
allowed). The mandatory withholding rate on supplemental
wages exceeding $1 million is 37%. This rate is tied to the
highest income tax rate.
The table that follows provides the 2024 supplemental
wage withholding rate(s) for those states that allow flat
rate withholding from supplemental wages. It is important
to note that rates could change if states update their 2024
withholding tables or state laws.
State Tax Rate State Tax Rate
Alabama 5% Nebraska 5%
Arkansas 4.4% New Mexico 5.9%
California 6.6% 10.23% for stock options and
bonus payments
New York 11.7%
Colorado 4.4% North Carolina 4.6%
February 19, 2024 Volume 26 Issue 4
