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Understanding Payroll Tax & Gross Receipts Tax

Entities with employees who perform work in SF or generate revenues in San Francisco.

Payroll and gross receipts taxes are two types of taxes businesses may have to pay.

Payroll tax is a tax on an employer’s total payroll expenses, including salaries, wages, bonuses, and employee benefits. The exact amount of payroll tax owed depends on the jurisdiction and the specific tax laws in place. In the United States, for example, payroll taxes include Social Security and Medicare taxes, which are withheld from employees’ paychecks and matched by the employer.

Gross receipts tax, on the other hand, is a tax on a business’s total revenue, regardless of its expenses. Unlike income tax, which is calculated based on profit (revenue minus expenses), gross receipts tax is applied to a company’s entire revenue without considering expenses or profits. Some states in the US, such as Texas, have a gross receipts tax in addition to state sales tax.

In summary, the payroll tax is a tax on an employer’s payroll expenses, while gross receipts tax is a tax on a business’s total revenue.

Businesses need to understand these taxes and stay compliant with tax laws in their jurisdiction.

A person is considered to be engaging in business within San Francisco if that person (or any employee, representative, or agent of that person) performs any of the following in San Francisco:
  • Maintains a fixed place of business (including any residence from which business is conducted)
  • Owns or rents any real or personal property for a business purpose
  • Maintains tangible personal property for sale in the ordinary course of business
  • Employs or loans capital on property
  • Solicits business for all or part of any seven days during a tax year
  • Performs any work or renders any services for all or part of any seven days during a tax year
  • Utilizes streets for business purposes for all or part of any seven days during the tax year

Qualifying activities also include exercising corporate or franchise powers or liquidating any business within the city.

Even if you are exempt, it is important to understand the criteria that trigger these taxes so that as you grow, you will know when you will be obligated to start paying them.

You are also eligible to “exempt” portions of your payroll tax, for example, work performed outside San Francisco. So, for example, if you have employees who work two days per week from their home in Oakland, you could “exempt” that portion of their payroll since the work was not performed in San Francisco. In some cases, these exemptions can even mean the difference between having to pay or not having to pay if they deliver you below the $150,000 threshold, for example. In short, you want to pay attention to this and navigate smartly for your business. Need help understanding this or with calculations? ZumiFi performs these services for our clients, so give us a call!

Understanding Payroll Tax & Gross Receipts Tax