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and employer contributions to SIMPLE retirement

6. Noncash payments for farmwork or household

accounts (including elective salary reduction

services in a private home. (Only cash wages paid to

contributions); section 125 (cafeteria) plan benefits; and

these workers are taxable.)

sick pay (including third-party sick pay if liability is

7. Value of certain meals and lodging. (See section 5

transferred to the employer).

in Pub. 15 (Circular E).)

8. Cost of group-term life insurance.

For details on sick pay, see Pub. 15-A, Employer’s

9. Payments attributable to the employee’s

Supplemental Tax Guide. Report amounts deferred

contributions to a sick-pay plan.

under a nonqualified deferred compensation plan at the

10. Employer contributions to a SIMPLE retirement

later of (a) when services are performed or (b) when

account (other than elective salary reduction

there is no substantial risk of forfeiture of the rights to the

contributions) and employer contributions to a 401(k)

deferred amount. For details, see Regulations section

plan.

31.3306(r)(2)-1. (Section 409A, added by the American

11. Employer payments to a Health Savings Account

Jobs Creation Act of 2004, provides new rules for

(HSA) or Archer MSA.

recognition of nonqualified deferred compensation for

12. Benefits excludable under a section 125

taxable years beginning after December 31, 2004. See

(cafeteria) plan.

section 5 of Pub. 15-A, Employer’s Supplemental Tax

13. Certain statutory employees. (See section 1 in

Guide, for more information.)

Pub. 15-A.)

14. Services performed by an inmate of a penal

Include tips of $20 or more in a month reported to you

institution.

by your employees. Also, include payments made by a

15. Employer reimbursements (including payments to a

previous employer if you are counting those payments for

third party) for qualified moving expenses, to the extent

the $7,000 wage base as explained under Successor

such expenses would otherwise be deductible by the

employer later.

employee. (See Pub. 521, Moving Expenses.)

Your method of payment does not determine whether

16. Any other exempt service or pay.

payments are wages. Thus, you may pay wages hourly,

daily, weekly, monthly, or yearly. You may pay wages for

For more information, see section 15 in Pub. 15

piecework or as a percentage of profits. You may pay

(Circular E) or section 15 in Pub. 51 (Circular A),

wages in cash or some other way, such as goods,

Agricultural Employer’s Tax Guide.

lodging, food, or clothing. For items other than cash, use

Line 3 — Payments of more than $7,000 for services.

their fair market value when paid.

Enter the total of amounts over $7,000 you paid to each

Line 2 — Exempt payments. The amounts reported on

employee during 2005 after subtracting any exempt

line 2 are exempt from FUTA tax. For FUTA tax

payments shown on line 2. For example, you had 10

purposes, “wages” and “employment” do not include

employees and paid each $9,000 during the year,

every payment and every kind of service an employee

including $500 of exempt payments per employee. Enter

may perform. In general, payments excluded from wages

$15,000 on line 3, computed as follows:

and payments for services excepted from employment

are not subject to FUTA tax. Do not enter payments

Total payments (10 x $9,000) . . . . . . . . . . . . . $90,000

over $7,000 for each employee that you enter on

Less: Exempt payments (10 x $500) . . . . . . . . ($5,000)

line 3.

Less: Total wage base amount (10 x $7,000) . . ($70,000)

You may deduct exempt payments from total

Amount reported on line 3 . . . . . . . . . . . . . $15,000

payments only if you explain them on line 2. Amounts

that may be exempt from your state’s unemployment tax

may not be exempt from FUTA tax. For example,

Only the first $7,000 paid to each employee is subject

corporate officers’ wages are not exempt from FUTA

to FUTA tax. Do not use the state wage base for this

tax even though your state may exempt those wages

entry. The state wage base may be different from the

from its unemployment tax.

federal wage base of $7,000. Do not include any exempt

payments from line 2 in figuring the $7,000.

Enter payments for services such as the following on

line 2. These payments also must be entered on

Successor employer. If you acquired a business

line 1.

from an employer that was required to file Form 940 (or

1. Agricultural labor if you did not meet either 1 or 2

Form 940-EZ), you may count the wages that employer

under Agricultural employers on page 2 and all payments

paid to the employees who continue to work for you when

you figure the $7,000 wage base. Include on line 3 the

to “H-2(A)” visa workers.

payments made by the previous employer that you

2. Benefit payments for sickness or injury under a

included on line 1.

workers’ compensation law.

3. Household services if you did not pay total cash

If the first employer paid $7,000 or more to the

wages of $1,000 or more in any calendar quarter in 2004

employee, also include on line 3 all the wages you paid

or 2005.

to that employee. If the first employer did not pay at least

4. Certain family employment. (See section 3 in

$7,000 to the employee, subtract what the first employer

Pub.15 (Circular E).)

paid from $7,000. Then subtract that result from the

5. Certain fishing activities. (See Pub. 595, Tax

wages you paid to the employee, and include any result

Highlights for Commercial Fishermen.)

on line 3.

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Instructions For Form 940 - Employer'S Annual Federal Unemployment (Futa) Tax Return - 2005 Page 5

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