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    Fringe benefits amount appears on wrong line on Form 940

    Article ID: 1000173

    Problem

    The Fringe Benefits amount appears on the wrong line on Form 940.

    Expected Outcome

    You will understand where Fringe benefits are reported on Form 940.

    Assumptions

    You have an active Enhanced or Standard Payroll subscription.

    Details

    The IRS has changed Form 940 and the instructions for completing it. Specifically, the IRS has changed the line where certain payroll items appear, for example, the Cafeteria Plan. For more information about changes Form 940, go to the IRS site.

    The following instructions are specific to Form 940, lines 3 and 4.

    Line 3 ("Total payments to all employees"):

    Report the total payments you made during the year on line 3. Include payments for the services of all employees, even if the payments are not taxable for FUTA. Your method of payment does not determine whether payments are wages. You may have paid wages hourly, daily, weekly, monthly, or yearly. You may have paid wages for piecework or as a percentage of profits, including the following:

    • Compensation, such as: Salaries, wages, commissions, fees, bonuses, vacation allowances, and amounts you paid to full-time, part-time, or temporary employees.
    • Fringe benefits, such as: Sick pay (including third-party sick pay if liability is transferred to the employer), the value of goods, lodging, food, clothing, and non-cash fringe benefits, and Section 125 (Cafeteria) plans.
      Note: For details on sick pay, see section 6 of Pub. 15-A, Employer's Supplemental Tax Guide.
    • Retirement/Pension, such as: Employer contributions to a 401(k) plan, payment to an Archer MSA, payments under adoption assistance programs, contributions to SIMPLE retirement accounts (including elective salary reduction contributions), and amounts deferred under a non-qualified deferred compensation plan.
    • Other payments, such as: Tips of $20 or more in a month that your employees reported to you, payments made by a predecessor employer to the employees of a business you acquired, and payments to non-employees who are treated as your employees by the state unemployment tax agency.

      Note: For details on wages and other compensation, see section 5 of Pub. 15-A, Employer's Supplemental Tax Guide

    Line 4 ("Payments exempt from FUTA tax"):

    You only report an amount as exempt from FUTA on line 4 if you included the amount on line 3. If you enter an amount on line 4, check the appropriate box or boxes on lines 4a through 4e to show the types of exempt payments you made.

    Some payments are exempt from FUTA tax because the payments are not included in the definition of wages or the services are not included in the definition of employment. Payments exempt from FUTA tax may include the following:

    • Fringe benefits, such as: The value of certain meals and lodging, contributions to accident or health plans for employees, including certain employer payments to a Health Savings Account or an Archer MSA, employer reimbursements (including payments to a third party) for qualified moving expenses, to the extent that these expenses would otherwise be deductible by the employee, and payments for benefits excluded under Section 125 (Cafeteria) plans.
    • Group term life insurance. For information about group term life insurance and other payments for fringe benefits that may be exempt from FUTA tax, see Pub. 15-B, Employer's Tax Guide to Fringe Benefits.
    • Retirement/Pension, such as: Employer contributions to a qualified plan, including a SIMPLE retirement account (other than elective salary reduction contributions) and a 401(k) plan.
    • Dependent care, such as: Payments (up to $5,000 per employee, $2,500 if married filing separately) for a qualifying person's care that allows your employees to work and that would be excluded by the employee under section 129.
    • Other payments, such as the following:
    • All non-cash payments for agricultural labor, and all payments to "H-2(A)" visa workers. See the information on page 2 or get Pub. 51 (Circular A), Agricultural Employer's Tax Guide.
    • Payments made under a worker's compensation law because of a work-related injury or sickness. See section 6 of Pub. 15-A, Employer's Supplemental Tax Guide.
    • Payments for domestic services if you did not pay cash wages of $1,000 or more (for all domestic employees) in any calendar quarter in 2005 or 2006. For additional information, see Pub 926, Household Employer's Tax Guide.
    • Payments for services provided to you by your parent, spouse, or child under the age of 21. For additional information, see section 3 of Pub 15-T (Circular E), Employer's Tax Guide.
    • Payments to certain fishing activities. For additional information, see Pub. 595, Employer's Tax Guide or section 15 of Pub. 51 (Circular A), Agricultural Employer's Tax Guide.

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