General grant of stock to an employee to be a form of compensation: If a company grants an employee 1,000 shares of stock worth $10/share during the course of year, that $10,000 in stock value is considered compensation, and is taxed exactly the way $10,000 in wages would be, at 1.5% of the value. Stock Option: which are a right to purchase company stock in the future at a price determined in advance, also taxed. The grant is not considered compensation until the options are exercised and the actual shares are passed from the company to the employee. Employee pays the company a strike price per-share, and the difference between the aggregate value of the shares received , and what the employee paid for the shares , is subject to the City's payroll expense tax. (Exception: ISOs – may not be subject to payroll tax, fairly small amount) IPO Tax Hit: Most companies will not experience significant payroll expense tax liability associated with stock options until their IPO because no market to exercise. Of the 8,000 payroll expense tax-paying businesses in San Francisco, perhaps 2-3 per year on average undertake an IPO. Based on an OEA survey, annual payments attributable to stock options ranged from $39,000 a year to $685,000, with an average of $140,000. 750k ceiling / floor – tax exclusion matters when the value stock option exceeds $50 million ($50 M x 1.5%=$750,000). The compensation must have been granted before the IPO.
Central Market Payroll Expense Tax Exclusion» Effective date: April 20, 2011» Available for a period of 8 years. Individual businesses may claim the exclusion for a maximum of 6 years.» Any business located within the Central Market/Tenderloin Payroll Expense Tax Exclusion area is eligible.» Application process, First Source Hiring, and community benefit requirements (for payroll over $1 million) apply
Central Market Payroll Expense Tax ExclusionPayroll expense tax exclusion is limited to the amount of payroll expense taxabove the business’s tax base year. Base year means:»For businesses already located in the tax exclusion area on the effective date,the Base Year is 2010.»For businesses located elsewhere in San Francisco that move into the taxexclusion area after the effective date, the Base Year is the full tax year for theyear prior to entering into a lease agreement or buying real property in the area.»For businesses located outside of San Francisco that subsequently relocate tothe tax exclusion area, the Base Year is their first full tax year in the area.
Stock Based Compensation Payroll Tax Exclusion» Overview » The City of San Francisco’s payroll expense tax covers all forms of compensation for services rendered in San Francisco, including but not limited to wages and salaries, bonuses, and stock compensation. » A payroll expense tax exclusion for stock based compensation was approved on June 3, 2011 and allows companies to exclude stock based compensation above certain thresholds for tax years 2011 – 2017. The exclusion expires in 2017. » All pre-IPO companies are eligible. Only stock compensation granted before an IPO is eligible.» Calculating Exclusion: » Paid more than $750,000 of Payroll Expense Tax on stock based compensation in 2010: Company may exclude payroll expense on stock based compensation for amount over what was paid in tax year 2010. » Paid less than $750,000 of Payroll Expense Tax on stock based compensation in 2010: Company may exclude payroll expense on stock based compensation above $750,000 in tax.» Requirements » File a timely affidavit with Treasurer and Tax Collector » Maintain records and documents » File annual payroll expense tax return with Treasurer and Tax Collector, regardless of amount owed, after claiming this exclusion
State Enterprise Zone Tax Credits» History: The Enterprise Zone program was developed by the California State Legislature to provide targeted areas with a means to stimulate business and employment growth. » The City & County of San Francisco is currently operating under a Conditional Designation which began on May 28, 2007.» Location: The Enterprise Zone includes the Financial District, SOMA, the Northeast Waterfront, Mission Bay, Central Waterfront/Dogpatch, the Mission, Bayview & Hunters Point.
State Enterprise Zone Tax Credits» Primary EZ Incentives: » Tax Credit for Sales or Use Tax Paid: income tax credit equal to the sales or use tax paid up to the first $1 million ($20 million for corporate taxpayers) of machinery or parts purchased for use within the enterprise zone. » Tax Credits for Qualified Hires: For each qualified individual working within the boundaries of the zone, businesses can receive a $37,000 tax credit over 5 years. There are 13 categories under which employees can qualify.
State Enterprise Zone Tax Credits» 13 Categories for EZ Hiring Credit Eligibility: » California Work Opportunity and Responsibility to Kids (CalWORKS) » Workforce Investment Act (WIA) (enrolled/eligible for WIA Intensive Services or Core B) » Work Opportunity Tax Credit (WOTC) or successor program » Economically disadvantaged individual 14 years of age or older » Dislocated worker » Disabled individual or service-connected disabled veteran » Vietnam Veteran or veteran recently separated » Ex-offender » Recipient of, or eligible for, Public Assistance (AFDC,SSI, Food Stamps) » Native American, Native Samoan, Native Hawaiian or member of another group of Native American descent » Targeted Employment Area (TEA) resident.
Local Enterprise Zone Payroll Tax Credits» As a supplement to the state level tax credits, San Francisco also offers an EZ Payroll Tax Credit.» Same zone (boundaries).» The credit is a tax incentive against the payroll taxes for any new hires. They must be San Francisco residents and must meet one of the qualifying categories of the state EZ program (except TEA category). Calculation of Payroll Tax Credit Year 1-2: 100% Year 3-4: 50% Year 5-6: 25% Year 7-8: 15% Year 9-10: 10%
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