Filing my 940, theres an issue with exempt payments?

@Mara K  Well, Line 4 of the report should give some indication of what the exempt payments are by way of checked boxes.

Can you elaborate on exactly why the exempt payments are an issue?

The error in the Annual Form 940 means that there's a payroll item that's typically exempt from Federal Unemployment but was set up in QuickBooks to calculate it, Mara. Let me provide guidance on how to resolve the error so you can file the tax form.

Most of the time, this happens if you have these payroll items:

• Fringe benefits 
• Group Term Life Insurance (GTLI)
• Retirement plans
• Dependent care

You can also follow these steps on how to correct the tax tracking type of these payroll items:

1. Go to the Lists and select Payroll Item List.
2. Right-click the payroll item, then choose Edit Payroll Item.
3. Select Next until you get to the Tax Tracking Type page.
4. Make sure the tax tracking type selected matches the payroll item used. Don’t use tax tracking type Other.
   • If the tax tracking type is correct, go to Step 5. 
5. If the tax tracking type is incorrect, select the correct one, and then select Next twice.
6. Click Finish and proceed to the next page.
7. From the Taxes window, review the Federal Unemployment tax.
   • If Federal Unemployment is unchecked, check it
   • If Federal Unemployment is checked, uncheck it 
8. Select Next, then choose Finish. 

After that, use the Payroll Check-up tool. This is used to verify your current setup by scanning your payroll data for missing info and any potential errors. This would also automatically create an adjustment for the wage base to remove the exempt payments and correct the amount in the Annual Form 940.

Let me share these steps with you:

1. Create and save a backup of your company file. 
2. Go to the Employees menu and choose My Payroll Service.
3. Click Run Payroll Checkup. 
4. Select Data Review. If errors are found, fix them. You can’t proceed to the next step without fixing the errors. 
5. In the Review your payroll data window, select No to allow the tool to create wage base discrepancy adjustments.
6. Click Continue, then choose Finish.

Alternatively, you can also create manual wage base adjustments for each employee who had the incorrect payroll item.

Please feel free to explore these articles for extra reference materials related to filing Form 940 and completing other year-end tasks:

• Understand Federal Unemployment Tax Act (FUTA) Credit Reduction States
• Year-end checklist for QuickBooks Desktop Payroll

Please don't hesitate to ask if you need further clarification as you work through the error correction steps. We're also here to assist with any questions about employee payments or payroll processing in QuickBooks.