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How Cannabis Businesses Can Turn to Payroll Tax Deferral for Financial Relief

Unlike other businesses that secured federal financial relief during the pandemic, state-legal medical and recreational cannabis businesses found themselves out of luck given they’re unable to qualify for the Paycheck Protection Program loans provided through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

These businesses don’t qualify for the federal assistance because they are engaged in “federally illegal” activities – applicants applying for the federal loans must certify, under penalty of perjury, that they are not engaged in “illegal” activity.

As frustrating as this has been for the cannabis industry, which is managing pandemic challenges much like other industries, one form of relief – deferral of employment tax payments – is available to these businesses.

Working Capital Cash Savings

Under the CARES Act, employers can defer the payment of the employer share of taxes, which is a mandatory employment tax both employees and employers pay. The employer’s share of Social Security taxes represents 6.2% of wages, subject to some limitations.

For employers paying employee wages, including those operating in states where medical and recreational cannabis have been legalized industry, like Michigan, this deferral provides working capital cash savings.

Here’s how it works if businesses take advantage of this deferral: the amount of the employer share of FICA taxes for the period beginning March 27 and ending Dec. 31, 2020 may be deferred, with the following payment outline:

  • 50% of the deferred amount will be paid Dec. 31, 2021
  • The remaining 50% of the deferred amount will be paid Dec. 31, 2022

Getting Started

Taking advantage of this deferral is simple: if your business has a payroll, it is eligible and may begin participating immediately by stopping payment of your share of FICA taxes until Dec. 31, 2020, when half of the deferred amount is due. If you work with a payroll company, let them know of your tax deferral plans.

Published in COVID-19

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