FAQs – Cannabis Industry Payroll Tax Reporting
Any business that engages employees must pay payroll taxes. This includes nonprofit or for-profit, medical, and recreational businesses, and businesses both licensed and not licensed with the Bureau of Cannabis Control .
An individual worker is an employee when hired by an employer to perform services. Either the worker is an employee by a statute (statutory employee), or the hiring entity fails to show that all of the following conditions are met (ABC test):
- The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The person performs work that is outside of the usual course of the hiring entity's business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
For more information:
Generally, a business becomes subject to state payroll taxes when they pay wages over $100 in a calendar quarter to one or more employees. Once becoming a subject employer, an employer must register with the EDD within 15 days .
For more information, visit Am I Required to Register as an Employer.
For more information about wages, subject wages, and Personal Income Tax (PIT) wages, refer to the following:
All wages must be reported to the EDD. Wages are all compensation for an employee’s personal services, whether paid by payroll check, personal check, cash, noncash payments (such as meals or lodging), and tips.
Reportable wages include:
- Work performed
- Back pay award
- Holding fees
- Holiday pay
- Idle time pay
- In-lieu-of-notice pay
- Jury duty pay
- Paid sick leave
- Piece work pay
- Residual pay
- Severance pay
- Strike benefits
- Temporary Total Disability
- Vacation pay
- Vocational Rehabilitation Maintenance Allowance
- Witness fees
- Workers’ Compensation
California has four state payroll taxes which are administered by the EDD.
Typically, a commercial type employer reports their payroll taxes on a Quarterly Contribution Return and Report of Wages (DE 9) and Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C).
For more information, visit Required Filings and Due Dates.
California passed Assembly Bill (AB) 1245 requiring all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to the EDD. For more information, visit E-file and E-pay Mandate for Employers.
e-Services for Business is a fast, easy, and secure way to meet this requirement and manage your employer payroll tax account online. Use e-Services for Business to register, file, and pay.
If your cannabis business is unable to get a checking account, you are still required to pay payroll taxes. Contact your local Employment Tax Office to make arrangements with an EDD representative.
You must submit California payroll taxes at least quarterly, sometimes sooner based on the total amount of Personal Income Tax (PIT) withholding of your deposit. Learn more about your payroll filing responsibilities at Required Filings and Due Dates.
Records to keep include, but not limited to:
- Time cards.
- Records of payments or payroll records (payroll check, personal check, cash, cannabis, meals, and tips).
- Other information necessary to determine payments issued to employees.
Employers are required to keep payroll records for a minimum of four years.
Records must include the following information for each worker:
- Full name (first name, middle initial, and last name)
- Social Security number
- Date hired, rehired, or returned to work after a temporary layoff.
- Last date services were performed.
- Place of work.
- Monies paid:
- Dates and amounts of payment.
- Pay period covered.
- Cash or cash value of in-kind wages (such as meals, lodging, bonuses, gifts, and prizes) showing the nature of the payment, the period that the services were performed, and the type of special payment made.
- The amounts withheld from employee wages.
- Disbursement records showing payments to workers.
- Other information necessary to determine payments to workers.
For additional information, refer to the California Employer’s Guide (DE 44) (PDF).
Yes. Cannabis workers must meet all Unemployment Insurance (UI) or State Disability Insurance (SDI) eligibility requirements in order to receive benefits.
The UI program pays benefits to workers who have lost their job. For an overview of the UI program, visit Unemployment Insurance.
The SDI program includes both Disability Insurance and Paid Family Leave, which provide short-term benefits to eligible workers who have a full or partial loss of wages due to a non-work-related illness, injury, or pregnancy. For an overview of the SDI program, visit Disability Insurance and Paid Family Leave.
- Bureau of Cannabis Control
Licensing information for retailers, distributors, testing laboratories, microbusinesses, and temporary cannabis events.
- Medical Cannabis Cultivation Program
Licensing information for cultivators or growers.
- California Department of Industrial Relations and US Department of Labor
Record keeping, minimum wage requirements, overtime wage requirements, and worker safety requirements.
- Internal Revenue Service
Payroll reporting requirements (including obtaining a federal employer identification number and federal income tax return requirements.
- Franchise Tax Board
State income tax return requirements.
- California Department of Tax and Fee Administration
Sales and use tax requirements.
- County governments for property tax requirements.
- City or county police departments about city or county laws.