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Texas: Guidance Addresses Costs Included as Benefits for Compensation Deduction for Franchise Tax

Letter No. 202310005L, Tex. Comptroller of Public Accounts (10/13/23). In a publication issued by Tax Policy explaining the types of costs allowed when determining the compensation deduction, the Texas Comptroller of Public Accounts (Comptroller) explained costs that may be included as benefits must:

  • Be similar to the items listed in Texas Tax Code section 171.1013(b)(2) (e.g., workers’ compensation benefits, health care, employer contributions made to employees’ health savings accounts, and retirement) and provide value to an employee in a personal capacity;

  • Be deductible for federal income tax purposes;

  • Not already be included in wages and cash compensation; and

  • Meet all the other requirements of title 34 Tex. Admin. Code section 3.589(e).

The Comptroller also provided a non-exhaustive list of items that may be included in the compensation deduction as benefits under certain circumstances (e.g., certain immigration expenses, meals, relocation/travel expenses, company-provided vehicles, health checkups, sports club memberships, cell phone expenses, entertainment expenses, book and journal subscriptions, professional dues, and studies/tuition reimbursement), and also lists certain items that may not be included as benefits. Please contact us with any questions.

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