As we all know, the industry throws us a curve ball every so often and taxes are no exception. Compliance regulations are especially cumbersome to taxes and businesses, like dispensaries, have to follow these regulatory guidelines.
Not only dispensaries but their employees must follow the same regulatory compliance rules. Dispensary employees pay their taxes by reporting their income at the federal and state levels.
The Internal Revenue Service (IRS) deems all income as taxable meaning the sale of marijuana is taxable. Any selling of cannabis products falls in line with this IRS guideline.
Dispensaries should know that employees pay their taxes similar to all businesses working within the United States.
This article explains the dynamics of dispensary employees paying taxes for you to gain insight.
Dispensary Employee Tax Process
Dispensary employees, whether classified as W-2 employees or 1099 independent contractors, are subject to income tax, payroll taxes, and potentially state and local taxes.
Dispensaries deduct payroll taxes from employee’s gross pay and match the taxes. They typically deduct federal and state payroll taxes for the dispensary to fund government officials.
Employers must also pay a portion of their employment taxes through payroll returns, and wages, and follow legal regulations following taxes. The IRS views any income coming into the business and employees as taxable income.
Tax Amount Employees Pay
The tax amount varies from employer to employer since cannabis companies have different amounts of taxable income for employees.
For businesses, it can be challenging to navigate the tax regulatory landscape due to the strict laws surrounding them.
If you have employees that you’re unsure about the taxable income they may owe during tax season, then it’s best to speak with a qualified cannabis accountant. Accountants with specific knowledge of the cannabis industry know the ins and outs of the tax regulation jungle.
Purpose Of Dispensary Employees Paying Taxes
Everyone is required to pay their taxes and cannabis employees aren’t exempt from it. It is required by law for employees to pay their taxes by allowing their employer to deduct payroll taxes from their gross income.
Cannabis businesses are also held to higher regulatory guidelines than traditional businesses due to the strict laws surrounding the cannabis industry. This makes cannabis businesses have a higher tax cost for them to pay every tax season.
That’s why these businesses should seek a professional accountant, especially those looking for cannabis accountants near Maryland.
Tax Compliance
Compliance entails diligently reporting all sources of income, understanding eligible deductions and credits, and maintaining accurate records.
Given the unique challenges in the cannabis industry, such as the impact of IRS 280E on business deductions, employees must navigate the tax landscape carefully.
Dispensaries must inform their employees about changing laws, utilize available tax benefits, and work closely with tax professionals to mitigate risks. This can ensure both employee tax and business tax compliance stays in line with current regulations in the evolving industry.
Reporting Income
Dispensary owners should be aware of how their employees can begin reporting income for taxes with these steps:
1. Determine Employment Classification:
- Identify the employee worker classification to see if your employee is a W-2 employee or a 1099 independent contractor. This classification affects how you report income and the taxes you are responsible for.
2. Receive and Review Tax Forms:
- W-2 employees receive a Form W-2 from their employer, detailing wages, taxes withheld, and other relevant information.
- 1099 independent contractors receive Form 1099-NEC, which outlines non-employee compensation. Contractors must also keep track of other income sources.
3. Gather Additional Income Information:
- Collect documentation for any additional income, such as bonuses, tips, or commissions.
4. Understand Eligible Deductions:
Know that your dispensary can’t deduct employee compensation due to the 280e tax code regulation. Other tax deductions may apply including cannabis dispensary cost of goods sold.
5. Complete and Submit Tax Forms:
- W-2 employees typically fill out Form 1040 or other applicable forms, using the information from their W-2.
- For 1099 contractors, they need to complete a Schedule C (Profit or Loss from Business) and include this information on the individual income tax return (Form 1040).
6. Utilize Available Tax Credits:
- You need to know that your employees can utilize available tax credits since they can identify and take advantage of any tax credits for which they may be eligible. This could include education credits, dependent care credits, or other applicable incentives.
7. File Taxes Timely:
- Dispensaries are required to report their employees’ taxable income to the appropriate tax authorities during tax season. This process involves providing employees with the necessary tax forms and submitting relevant information to the Internal Revenue Service (IRS) and, if applicable, state and local tax authorities.
By following these steps and staying informed about changes in tax laws, employees can navigate the complexities of reporting income for taxes and fulfill their obligations following federal, state, and local regulations.
Final Thoughts
Dispensary businesses must ensure tax compliance for their employees is not only a legal obligation but also a critical aspect of responsible business management.
Properly reporting employees’ taxable income involves issuing accurate tax forms such as W-2s for staff and 1099-NECs for independent contractors. The complexities of the cannabis industry, including the impact of IRS Section 280E, necessitate a thorough understanding of tax regulations.
Getting a firm grasp on accounting for dispensaries can pave the way to enhance business operations.
Dispensaries should prioritize clear communication with employees, providing them with the necessary documentation promptly. Maintaining accurate records and adhering to federal, state, and local tax requirements are fundamental practices.
By proactively addressing tax responsibilities, dispensaries can contribute to the financial stability of both their business and employees. Staying informed about changes in tax codes and leveraging available tax credits can position dispensaries for continued success in an industry that continues to evolve.
Consulting with professionals who specialize in cannabis accounting services can offer invaluable guidance in navigating the intricacies of tax reporting.
When consulting with accountants, you receive a thorough financial overview from payroll, and tax planning to tax preparation.
Green Space Accounting offers these services and others for cannabis dispensaries in the industry.
Dispensary businesses can not only navigate the intricacies of tax season effectively but also contribute to the overall resilience and prosperity of their operations in this dynamic industry.
