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

contributions) and employer contributions to a 401(k)

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

plan.

deferred amount. For details, see Regulations section

11. Employer payments to a Health Savings Account

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

(HSA) or Archer MSA.

Jobs Creation Act of 2004, provides new rules for

12. Benefits excludable under a section 125

recognition of nonqualified deferred compensation for

(cafeteria) plan.

taxable years beginning after December 31, 2004. See

13. Certain statutory employees. (See section 1 in

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

Pub. 15-A.)

Guide, for more information.)

14. Services performed by an inmate of a penal

institution.

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

15. Employer reimbursements (including payments to a

by your employees. Also, include payments made by a

third party) for qualified moving expenses, to the extent

previous employer if you are counting those payments for

such expenses would otherwise be deductible by the

the $7,000 wage base as explained under Successor

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

employer later.

16. Any other exempt service or pay.

Your method of payment does not determine whether

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

For more information, see section 15 in Pub. 15

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

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

piecework or as a percentage of profits. You may pay

Agricultural Employer’s Tax Guide.

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

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

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

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

their fair market value when paid.

employee during 2004 after subtracting any exempt

Line 2 — Exempt payments. The amounts reported on

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

line 2 are exempt from FUTA tax. For FUTA tax

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

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

including $500 of exempt payments per employee. Enter

every payment and every kind of service an employee

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

may perform. In general, payments excluded from wages

and payments for services excepted from employment

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

are not subject to FUTA tax. Do not enter payments

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

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

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

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

may not be exempt from FUTA tax. For example,

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

corporate officers’ wages are not exempt from FUTA

entry. The state wage base may be different from the

tax even though your state may exempt those wages

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

from its unemployment tax.

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

Enter payments for services such as the following on

Successor employer. If you acquired a business

line 2. These payments also must be entered on

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

line 1.

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

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

paid to the employees who continue to work for you when

under Agricultural employers on page 2 and all payments

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.

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

3. Household services if you did not pay total cash

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

wages of $1,000 or more in any calendar quarter in 2003

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

or 2004.

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

4. Certain family employment. (See section 3 in

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

Pub.15 (Circular E).)

wages you paid to the employee, and include any result

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

on line 3.

Highlights for Commercial Fishermen.)

6. Noncash payments for farmwork or household

For example, during 2004, prior employer P paid

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

$5,000 to employee Jones before the acquisition and

these workers are taxable.)

acquirer A paid $3,000 to Jones after the acquisition.

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

Subtracting the $5,000 from $7,000 yields $2,000.

in Pub. 15 (Circular E).)

Subtracting the $2,000 from $3,000 (wages paid by

8. Cost of group-term life insurance.

acquirer A to Jones) yields $1,000. Acquirer A reports

9. Payments attributable to the employee’s

$8,000 (total payments) on line 1 and $6,000 ($5,000

contributions to a sick-pay plan.

paid by prior employer P and $1,000 in excess of the

10. Employer contributions to a SIMPLE retirement

$7,000 wage base) on line 3. See section 3306(b)(1) and

account (other than elective salary reduction

Regulations section 31.3306(b)(1)-1(b) for details.

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Instructions For Form 940 - Employer'S Annual Federal Unemployment (Futa) Tax Return - 2004 Page 5

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