No, compensation is specifically defined for franchise tax reporting purposes in Texas Tax Code (TTC) 171.1013.
The following components are included in the compensation deduction:
A single-member LLC treated as a sole proprietorship for federal tax purposes may include in compensation the net distributive income to the single member that is a natural person. Net distributive income is the net amount of income, gain, deduction or loss reportable on the sole proprietor's federal tax return to the extent that it relates to the LLC. It includes amounts from IRS Form 1040 to the extent the items relate to the LLC; for example:
No, the employer's share of payroll taxes cannot be included in wages and cash compensation or benefits.
No. It cannot be included as compensation when calculating margin.
Net distributive income for a pass-through entity is the net amount of income, gain, deduction or loss reportable to the owners on an IRS Form K-1 for the tax year of the entity. (Actual distribution is not required.) Guaranteed payments to partners are included when computing net distributive income.
If an entity elects to subtract compensation in computing its margin, it must include all compensation as defined in TTC 171.1013. If NDI is a negative number, then we will treat it as a negative number in computing compensation.
If an entity issues a W-2 and a K-1 to an individual, the wage limitation, per 12-month period on which margin is based, applies to the sum of the individual's W-2 and K-1.
No. If the accounting period is more than or less than 12 months, the wage limitation must be prorated over the length of the accounting period. For example, if the 2016 report is based on the accounting period Jan. 1, 2015, to June 30, 2015, the deduction for wages and cash compensation is not $360,000, but rather is limited to $180,000 per person.
Benefit costs are treated differently based on how they are reported for federal tax purposes.