A Quick Guide to Cannabis Payroll Tax Regulation

Many entrepreneurs are excited to venture into the thriving legal cannabis market. If you’re one of them, you have every right to be optimistic, but you should also be aware of the many hurdles that come with entering the industry. For novices, these challenges include the complexities of filling in the payroll taxation. 

This is one of the many reasons both veterans and newcomers in the field seek effective marijuana payroll solutions, so they can focus on other aspects of growing their business. To get a better glance and idea about the tax regulation surrounding your pending cannabis business venture, read on! 

When does a cannabis business become subject to state payroll taxes?

Any company that engages employees is legally required to pay payroll taxes. In other words, no marijuana-related business (MRB) is exempt from employment tax obligations. It doesn’t matter if you’re registered as a for-profit, non-profit, medical, or recreational corporation – this should be an integral part of your payroll process. For example, in California, both licensed and non-licensed businesses are required to pay payroll taxes.

Your MRB will become subject to state tax when you pay quarterly wages in a value above $100. This can include only one or more employees. Once your company becomes a subject employer, you must register with the appropriate employment department (EDD in California). 

Do cannabis employees pay federal taxes? 

What you need to keep in mind that any source of income is taxable. This applies to all earnings that result from sales of cannabis products. This means that you’ll probably have to pay federal income tax on sales from your cannabis dispensary and file an annual tax return form with the Internal Revenue Service (IRS). As an owner of a small business, you’re required to file regular sales and use tax returns to report your sales. 

Are marijuana operators exempt from certain federal taxes?  

Of course, there is a question of potential tax exemption and the amount you’d need to pay. This largely depends on the particular state regulation. For example, if there’s a type of tax exemption law that applies to producers of certain agricultural products, the question is whether it applies to dispensary products. 

You shouldn’t mistake income with excise tax: while MRBs are subject to federal income taxes and excise taxes in certain states, the product (marijuana) is not subject to any federal excise tax at the moment. This is largely due to the fact that the legal status of cannabis products is still not the same across all states. 

What do you need to file to IRS at the end of the year? 

Generally, you must report wages, tips, and other types of monetary payments to your employees by filing the required forms to the IRS. This would include: 

• Form W-2 for each employee
• Wage and Tax Statement, to report compensation paid to employees
• Employer’s Quarterly Federal Tax Return
• Employer’s Annual Federal Tax Return
• Annual Return of Withheld Federal Income Tax 
• Employer’s Annual Federal Unemployment (FUTA) Tax Return, etc. 

Whether you’d be subject to filing other forms, it’s best to consult with your local tax authority and prevent issues with income reporting. This can be done in paper form or online. There are two ways to deposit the reports, on a monthly or semi-weekly basis. Before the beginning of the calendar year, you should learn which schedule you’re required to use. 

Who do I call for efficient marijuana payroll solutions?

When you decide to become a successful cannabis operator, having a team of experts in your corner can truly pay off, but it’s not easy to find. Fortunately, Green Leaf Business Solutions offers a shortcut to a variety of solutions. With the help of our reliable and expert-based payroll procedures and our cutting-edge software, you’ll be able to devote your time and energy to more creative aspects of your work. 

Lean onto us to handle the intricacies of calculating employee bonuses and benefits, classifying your staff, and developing retirement plans, as well as a variety of other financial and HR questions. Don’t hesitate to give us a call today!