Cannabis Industry Payroll Tax Reporting FAQs
Find answers to frequently asked questions about cannabis industry reporting.
Any business with employees must pay payroll taxes. This includes:
- Recreational businesses.
- Department of Cannabis Control licensed and unlicensed businesses .
An individual worker is an employee when they are hired by an employer to perform a service. Either the worker is an employee by a statute (statutory employee), or the hiring entity does not show that all of the following conditions are met (ABC test):
- The individual 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 individual performs work that is outside of the usual course of the hiring entity's business.
- The individual 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 the business becomes 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 subject wages must be reported to the EDD. This includes wages, whether paid by payroll check, personal check, cash, noncash payments (such as meals or lodging), and tips which are considered compensation for an employee’s personal service.
You must report the following types of wages, which may include:
- Payments work performed
- Back pay award
- Cash value of in-kind wages
- Holiday pay
- Idle time pay
- Meals and lodging
- In-lieu-of-notice pay
- Piece work pay
- Residual pay
- Severance pay
- Vacation pay
Typically, a commercial type employer reports their payroll taxes on a:
- Quarterly Contribution Return and Report of Wages (DE 9)
- 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.
If your cannabis business cannot open a checking account, you are still required to pay payroll taxes. Contact your local Employment Tax Office to make payment arrangements with an EDD representative or use PayNearMe (cash payments) or a credit card to make your Payroll Tax Deposit (DE 88) payments electronically.
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 are 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.
If you do not consider yourself a subject employer, records shall be maintained for at least eight years after the period to which the records relate.
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 products, meals, lodging, bonuses, gifts, and prizes) showing what the payment was for, 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 (DI) and Paid Family Leave PFL. It provides short-term DI and PFL wage replacement benefits to eligible California workers who need time off for their own non-work-related illness, injury, pregnancy, childbirth, or family leave. For an overview of the SDI program, visit Disability Insurance and Paid Family Leave.
- Department of Cannabis Control
Licensing information for retailers, distributors, testing laboratories, microbusinesses, and temporary cannabis events.
- 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.
- City and County governments.