Cannabis Payroll Tax Reporting: Requirements for Businesses

The cannabis industry is thriving, but navigating the complex web of regulations, particularly those surrounding payroll and tax reporting, can be a daunting task. Since cannabis remains federally illegal, cannabis businesses operate under a unique set of reporting requirements that vary by state.

Here's an outline of the specific payroll reporting requirements cannabis businesses must adhere to in order to stay compliant:

Cannabis Payroll Tax Reporting

Before you can start processing cannabis payroll, you need to ensure that you understand the payroll tax reporting requirements that apply to your unique business. 

Businesses should be aware of the federal requirements regarding cannabis payroll taxes, as well as check for any state requirements that may apply to them. 

Federal Cannabis Payroll Tax Reporting Requirements

Cannabis businesses should be aware of the following federal payroll tax reporting requirements: 

• Federal Income Tax Withholding: Cannabis businesses are required to withhold federal income tax from employee wages, just like any other employer. The standard withholding tables and deposit rules established by the IRS apply. 
• Social Security and Medicare Taxes: Employers must also pay their share of Social Security and Medicare taxes on all employee wages, including any bonuses or overtime pay. However, Section 280E of the Internal Revenue Code disallows cannabis businesses from deducting ordinary and necessary business expenses, including employee wages, from their federal income taxes. This can significantly impact a business's tax burden. Businesses should consider learning more about what is 280e compliance?

Potential State Cannabis Payroll Tax Reporting Requirements

Cannabis businesses should check for the following state payroll tax reporting requirements: 

• State Income Tax Withholding: Most states with legalized cannabis have implemented a state income tax withholding requirement for cannabis businesses. Withholding rates and deposit rules vary by state. Businesses should consult their state's Department of Revenue website for specific information. The National Cannabis Industry Association has some resources that may help.
• State Unemployment Insurance: Cannabis businesses are generally required to register for state unemployment insurance and pay unemployment taxes on employee wages. Contribution rates and reporting deadlines vary by state. Again, consult your state's Department of Labor website for details.
• State and Local Taxes: Some states and localities may impose additional payroll taxes on cannabis businesses. Be sure to research any applicable local and county-level taxes in your area.

Importance of Accurate Recordkeeping

Maintaining meticulous records of all employee wages, hours worked, taxes withheld, and benefits offered is crucial for cannabis businesses. These records are essential for accurate payroll processing, tax filing, and potential audits.

Find a Cannabis Payroll Tax Service

Staying compliant with payroll reporting requirements can be complex for cannabis businesses. Partnering with a payroll service provider experienced in the cannabis industry can help ensure you meet all federal and state regulations.

At PayNW, we understand the unique challenges faced by cannabis businesses when it comes to payroll, timekeeping, and Human Capital Management (HCM). Our comprehensive suite of services integrates seamlessly with specialized accounting software designed for the cannabis industry.

Our cannabis payroll and HR services offer: 

• Payroll Processing Tailored to Cannabis Businesses: Manage complex tax calculations, including state and local cannabis taxes, with ease.
• Time Tracking Solutions with 280E Support: Our integrated timekeeping solutions go beyond simple hour tracking. They allow you to:
  • Track Employee Activities: Categorize employee hours by specific tasks or departments (cultivation, processing, sales). This detailed data allocation can be crucial for supporting your 280E reporting by demonstrating the non-plant-touching activities your employees perform, potentially qualifying those wages as deductible business expenses.
  • Compliance Tracking: Ensure overtime is calculated and tracked correctly, and breaks mandated by labor laws specific to the industry are documented.
• HCM Tools for Streamlined Management: Manage employee certifications, training completion, employee benefits, onboarding, and offboarding processes efficiently with our user-friendly HCM platform.

By streamlining your expense tracking, timekeeping, and payroll processes, you can ensure financial accuracy, improve employee satisfaction, and gain valuable insights for data-driven business decisions.

Let PayNW help your cannabis business flourish! Contact us today to discuss how our payroll, timekeeping, and HCM solutions can be customized to meet your specific needs, including providing the data necessary to assist with your 280E reporting requirements.

Or, learn more about our workforce management solution for cannabis by clicking below!