Form 8932: Filing for the Employer Differential Wage Credit

Form 8932 is used by employers to claim a tax credit for paying wages to employees who are on active duty in the uniformed services. This credit, known as the credit for employer differential wage payments, is designed to offset the cost of paying the difference between an employee’s military pay and their normal wages. It is a general business credit calculated as a percentage of the differential wages paid, providing a direct reduction in the employer’s income tax liability.

Determining Your Filing Requirement

To claim the credit for differential wage payments, an employer must have a written plan to provide these payments to every qualified employee. A qualified employee is an individual who has been an employee for the 91-day period immediately preceding the period of active duty and is serving on active duty in the uniformed services for more than 30 days.

Differential wage payments are defined as any payment made to an employee on active duty for more than 30 days. The payment must represent all or a portion of the wages the individual would have received if they were performing service for the employer. These payments are treated as wages for income tax withholding purposes but not for FICA or FUTA taxes.

Information Needed to Complete Form 8932

To complete Form 8932, an employer must gather specific information for each qualified employee. This includes the employee’s name and the total amount of eligible differential wage payments made to them during the tax year. Only the first $20,000 of differential wage payments made to any single employee can be taken into account when calculating the credit.

The form requires the employer to list the total eligible differential wage payments for all qualified employees. The credit is calculated at a rate of 20% of this total amount. For example, if an employer paid a total of $50,000 in eligible differential wages to its employees, with no single employee receiving more than $20,000, the credit would be $10,000.

The amount of the credit claimed on Form 8932 directly reduces the employer’s deduction for salaries and wages. An employer cannot deduct the full amount of the differential wages and also claim the credit on those same wages. The business’s deduction for compensation must be reduced by the amount of the credit.

Filing and Attaching the Form

How Form 8932 is filed depends on the business structure. For partnerships and S corporations, Form 8932 must be completed and filed with their respective tax returns, such as Form 1065 or Form 1120-S. The credit is then passed through to the partners or shareholders on their Schedule K-1. Other business entities, like C corporations, file the form with their annual income tax return.

The credit for employer differential wage payments is a component of the general business credit. The amount calculated on Form 8932 is carried to Form 3800, General Business Credit, where it is combined with any other business credits. The final allowable credit is subject to tax liability limitations determined on Form 3800. The filing deadline for Form 8932 corresponds with the due date of the income tax return with which it is being filed, including any extensions.