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. The Stock-Based Compensation Exclusion (the “Exclusion”) allows eligible persons to exclude from taxation stock-based compensation (defined below) above certain thresholds for tax years 2011 – 2017. The Exclusion applies only to persons that have undertaken an IPO on a public stock exchange, or have experienced a change in control prior to any such IPO, on or after July 3, 2011. For purposes of the Exclusion, “stock-based compensation” includes all incentive and non-statutory stock options granted prior to the date a person makes an IPO or undergoes a change in control including all underlying stock relating to such options, restricted stock, restricted stock units, and stock acquired as a result of employee stock purchase plans.


Calculating Exclusion

  • If the eligible person paid more than $750,000 of payroll expense tax attributable to stock-based compensation for tax year 2010, the eligible person may exclude payroll expense attributable to stock-based compensation in excess of the stock-based compensation paid in tax year 2010.
  •  If the eligible person paid did not pay more than $750,000 of payroll expense tax attributable to stock-based compensation for tax year 2010, the eligible person may exclude payroll expense attributable to the stock-based compensation in excess of the stock-based compensation that would be required to generate $750,000 in payroll expense tax.

Requirements

  • File a timely Affidavit Claiming Payroll Expense Tax Exclusion for Stock-Based Compensation (including any supporting documentation) with the Tax Collector by January 31st (or the next business day, if January 31st falls on a weekend) that attests to the facts establishing entitlement to the Exclusion. A copy of the Affidavit can be found under the “Tax Credits and Exclusions” section of this page.
  • Maintain records and documents in a manner acceptable to the Tax Collector, which objectively substantiate the Exclusion.
  • Timely file an annual payroll expense tax return with Tax Collector, regardless of the amount of tax liability shown on the return after claiming the Exclusion.
  • Not take any other payroll expense tax exclusion.

Additional Information

The Stock-Based Compensation Exclusion ordinance (Business and Tax Regulations Code section 906.4) can be found by clicking here.


Need Assistance?

Contact Greg Kato, Office of the Treasurer-Tax Collector, at (415) 554-6888 or Greg.Kato@sfgov.org