2023 Texas Statutes › Tax Code › Title 2 - State Taxation › Subtitle F - Franchise Tax; Credits › Chapter 171 - Franchise Tax › Subchapter C. Determination of Taxable Margin; Allocation and Apportionment › Section 171.1013. Determination of Compensation

Sec. 171.1013.  DETERMINATION OF COMPENSATION.  (a)  Except as otherwise provided by this section, "wages and cash compensation" means the amount entered in the Medicare wages and tips box of Internal Revenue Service Form W-2 or any subsequent form with a different number or designation that substantially provides the same information.  The term also includes, to the extent not included above:
(1)  net distributive income from a taxable entity treated as a partnership for federal income tax purposes, but only if the person receiving the distribution is a natural person;
(2)  net distributive income from limited liability companies and corporations treated as S corporations for federal income tax purposes, but only if the person receiving the distribution is a natural person;
(3)  stock awards and stock options deducted for federal income tax purposes; and
(4)  net distributive income from a limited liability company treated as a sole proprietorship for federal income tax purposes, but only if the person receiving the distribution is a natural person.
(b)  Subject to Section 171.1014, a taxable entity that elects to subtract compensation for the purpose of computing its taxable margin under Section 171.101 may subtract an amount equal to:
(1)  subject to the limitation in Subsection (c), all wages and cash compensation paid by the taxable entity to its officers, directors, owners, partners, and employees; and
(2)  the cost of all benefits, to the extent deductible for federal income tax purposes, the taxable entity provides to its officers, directors, owners, partners, and employees, including workers' compensation benefits, health care, employer contributions made to employees' health savings accounts, and retirement.
(b-1)  This subsection applies to a taxable entity that is a small employer, as that term is defined by Section 1501.002, Insurance Code, and that has not provided health care benefits to any of its employees in the calendar year preceding the beginning date of its reporting period.  Subject to Section 171.1014, a taxable entity to which this subsection applies that elects to subtract compensation for the purpose of computing its taxable margin under Section 171.101 may subtract health care benefits as provided under Subsection (b) and may also subtract:
(1)  for the first 12-month period on which margin is based and in which the taxable entity provides health care benefits to all of its employees, an additional amount equal to 50 percent of the cost of health care benefits provided to its employees for that period; and
(2)  for the second 12-month period on which margin is based and in which the taxable entity provides health care benefits to all of its employees, an additional amount equal to 25 percent of the cost of health care benefits provided to its employees for that period.
(c)  Notwithstanding the actual amount of wages and cash compensation paid by a taxable entity to its officers, directors, owners, partners, and employees, a taxable entity may not include more than $300,000, or the amount determined under Section 171.006, per 12-month period on which margin is based, for any person in the amount of wages and cash compensation it determines under this section.  If a person is paid by more than one entity of a combined group, the combined group may not subtract in relation to that person a total of more than $300,000, or the amount determined under Section 171.006, per 12-month period on which margin is based.
(c-1)  Subject to Section 171.1014, a taxable entity that elects to subtract compensation for the purpose of computing its taxable margin under Section 171.101 may not subtract any wages or cash compensation paid to an undocumented worker.  As used in this section "undocumented worker" means a person who is not lawfully entitled to be present and employed in the United States.
(d)  A taxable entity that is a professional employer organization:
(1)  may not include as wages or cash compensation payments described by Section 171.1011(k); and
(2)  shall determine compensation as provided by this section only for the taxable entity's own employees that are not covered employees.
(e)  Subject to the other provisions of this section, in determining compensation, a taxable entity that is a client that contracts with a professional employer organization for covered employees:
(1)  shall include payments made to the professional employer organization for wages and benefits for the covered employees as if the covered employees were actual employees of the entity;
(2)  may not include an administrative fee charged by the professional employer organization for the provision of the covered employees; and
(3)  may not include any other amount in relation to the covered employees, including payroll taxes.
(f)  A taxable entity that is a management company:
(1)  may not include as wages or cash compensation any amounts reimbursed by a managed entity; and
(2)  shall determine compensation as provided by this section for only those wage and compensation payments that are not reimbursed by a managed entity.
(g)  A taxable entity that is a managed entity shall include reimbursements made to the management company for wages and compensation as if the reimbursed amounts had been paid to employees of the managed entity.
(h)  Subject to Section 171.1014, a taxable entity that elects to subtract compensation for the purpose of computing its taxable margin under Section 171.101 may not include as wages or cash compensation amounts paid to an employee whose primary employment is directly associated with the operation of a facility that is:
(1)  located on property owned or leased by the federal government;  and
(2)  managed or operated primarily to house members of the armed forces of the United States.
Amended by:
Acts 2006, 79th Leg., 3rd C.S., Ch. 1 (H.B. 3), Sec. 5, eff. January 1, 2008.
Acts 2007, 80th Leg., R.S., Ch. 1282 (H.B. 3928), Sec. 16, eff. January 1, 2008.
Acts 2013, 83rd Leg., R.S., Ch. 117 (S.B. 1286), Sec. 26, eff. September 1, 2013.