LEGISLATIVE BRIEFS*
	COBRA Temporary Extension
	Proposition Q
	Children's Health Insurance Program Reauthorization Act of 2009
	The HITECH Rules: Impact on Insurance Brokers as Business Associates
	5500 Electronic Filing Reqirements for 2009 Plan
	2010 DOL Publishes Model ARRA NDAA Notices
	2010 Update on COBRA/ARRA Extension
	2009 Health Savings Accounts / High Deductible Health Plans Limits Released
	The Heroes Earnings  Assistance and Relief Tax (HEART) Act of 2008
	2008 Indexed Figures for Qualified Retirement Plans
*	Legislative Briefs are not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

Proposition Q

 

Businesses that operate in the city of San Francisco with at least one employee and have payroll greater than $250,000 are subject to a 1.5% tax on their taxable payroll. Previously, compensation related to pass-through entities such as partnerships, limited liability companies and S-Corporations escaped this additional payroll expense on the amounts passed through to owners in
the form of distributions.

Effective January 1, 2009, distributions to partners and owners of pass-through entities in exchange for the performance of services must now be included in the 1.5% tax calculation on their taxable payroll. For the first year (2009), the tax is due by February 28, 2010. In subsequent years, quarterly pre-payments are required if your previous year's San Francisco payroll tax expense liability was more than $50,000.

There is a safe harbor provision providing some relief. The payroll expenses for each owner will be capped at the total of the owner’s compensation (W-2 or guaranteed payments) plus 200% of the average annual compensation of the entity's top 25% highest paid employees who are based in San Francisco. Additionally, the payroll expense calculation does not include returns on investments.

For example:
A general partner received guaranteed payments of $300,000 and additional distributions of $1,000,000 from the partnership. The top 25% highest paid employees received an average annual compensation of $100,000. The amount of the partner's distributions includable in the payroll expense would be limited to his/her guaranteed payments ($300,000) plus 200% of the average
annual compensation of the top 25% highest paid employees ($100,000 x 200% = $200,000), for a total of $500,000 (instead of the $1,300,000 distributions actually received by the partner).

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