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Did You Know San Francisco's Payroll Tax Includes Partner and LLC Income?

San Francisco’s payroll tax has a broad definition of payroll.

 The term “payroll” may be misleading as it includes employer contributions to 401(k) plans and the value of stock options. In addition, SF extends the applicability of payroll expense tax to include compensation for personal services paid to owners of partnerships, LLPs, LLCs, and S-Corporations.

The payroll base of pass-through entities (such as partnerships and LLCs) should include guaranteed payments and distributions to an owner for services performed, exclusive of any return on capital investment or profit interest. Unfortunately this reporting burden is different from the treatment of federal income or payroll tax.

 Safe Harbor - If a taxpayer has at least four W-2 employees based in San Francisco, the amount of payroll included for each individual owner of a pass-through entity may be calculated by adding to his or her base salary an amount equal to 200 percent of the average annual compensation paid to the W-2 employees whose compensation is in the top 25% of that entity's SF based employees.

To schedule a consultation on San Francisco or other city taxes, please contact me today.

 

Richard Pon CPA, CFP