Can Cannabis Businesses Defer Employment Taxes Due to the Coronavirus?

By Andrea A. Golan

Apr 24, 2020

Under the CARES Act, employers may defer the deposit and payment of an employer’s share of Social Security tax and self-employed individuals may defer payment of certain self-employment taxes. According to official IRS guidance, all employers may defer the deposit and payment of their share of Social Security tax. While cannabis businesses are not currently eligible for many federal relief programs established in response to COVID-19 such as the PPP, it appears that cannabis businesses may be eligible for this form of federal relief.

Employers are not required to make a special election to be able to defer such deposits and tax payments. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning March 27, 2020, and ending December 31, 2020 (referred to as the “payroll tax deferral period” in Section 2302 of the CARES Act).  

Employers’ Quarterly Federal Tax Return Form 941 will be revised for the second calendar quarter of 2020 (April-June 2020). The IRS indicates that it will soon instruct employers on how to reflect deferred deposits and payments otherwise due on or after March 27, 2020, for the first quarter of 2020 (January – March 2020).

A self-employed taxpayer is entitled to a comparable reduction in his or her self-employment taxes pertaining to 50% of social security tax on net earnings from self-employment income for the payroll tax deferral period.

Deferred deposits of social security taxes must be paid per the following schedule to be treated as timely and avoid penalties:

  • December 31, 2021 – 50% of the deferred amount; and
  • December 31, 2022 – the remaining amount.

See this IRS FAQ for more information.

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