Running a cannabis cultivation business requires understanding a wide variety of legal, financial, and tax obligations. Among the critical tax-related concerns is the decision to pick the correct payroll tax form. Specifically, for agricultural businesses like cannabis cultivation, Form 943 plays a pivotal role. This article will delve into the nitty-gritty of Form 943, its requirements, filing instructions, and its relevance to cannabis cultivators.
Understanding Form 943: What is it?
Form 943, officially known as the Employer’s Annual Federal Tax Return for Agricultural Employees, is a document that agricultural employers use to report the taxes they have withheld from their employees’ wages. These include federal income tax, Social Security tax, and Medicare tax. The form is particularly relevant for different types of farm employees, such as harvesters, soil surveyors, and farm managers, which may include those involved in cannabis cultivation.
Form 943 is used to report taxes from wages paid to one or more farmworkers, making it a vital document for any agricultural employer, including those in the cannabis industry.
When is Form 943 Required?
As an agricultural employer, you must file Form 943 if you’ve withheld taxes from one or more farm workers’ wages during a tax year. However, certain conditions must be met to necessitate the filing of Form 943.
Primarily, you must withhold taxes from employees’ wages under two scenarios:
- If you pay an employee a cash wage of $150 or more during the tax year for farm work.
- If the total wages, comprising both cash and noncash, paid to all farm workers during the year amount to $2,500 or more.
If your cannabis cultivation business doesn’t meet these criteria, you don’t have to file Form 943. It’s essential to check the Department of Labor’s website to fully grasp the regulations and laws you must adhere to as an agricultural employer.
Preparing to Complete Form 943
To fill out your Form 943 accurately, you must gather certain crucial pieces of information. Including contact details (like your mailing address and phone number), your business’s Federal Employer Identification Number (FEIN), and your financial records for the tax year (such as employee wages and withheld taxes).
Form 943 doesn’t necessitate any supporting documents or information like receipts. However, be prepared to furnish additional information if the IRS requests it after you’ve submitted the form.
The Filing Process for Form 943
Knowing when and how to file Form 943 is crucial for cannabis cultivators. This form is filed annually. Even if there are no taxes to report, you must file a return every year after submitting your first Form 943 until you cease employing or paying agricultural workers.
The deadline for filing Form 943 is January 31st each year. However, if you’ve made deposits on time and in full for the tax year, you can file the return by February 11th.
You have the option to mail Form 943 or file it electronically. If you prefer mailing, you’ll need to send the form directly to the IRS. However, you can also file the form online on the IRS website. For more detailed instructions on how to complete the form, refer to the IRS’s official website.
Filing Form 943: A Step-By-Step Guide
Filing Form 943 involves several steps, each requiring specific information and calculations. Here’s a step-by-step guide to help you navigate the process:
Step 1: Basic Information
The first step involves filling out the basic information about your business. Check the correct box if your business address has changed since your last return. If you’re closing down your business or no longer employing agricultural workers, mark the appropriate box.
Step 2: Calculating Wages and Taxes
The next step involves a line-by-line calculation of wages paid and taxes due. In this step, you’ll input the number of employees, total wages paid, the amount of federal income tax withheld, and more.
This step also accounts for any tax credits for qualified sick and family leave and COBRA premiums that were provided because of the pandemic.
Step 3: Reconciling and Finalizing
After calculating your wages and taxes, you’ll reconcile your tax liability with the total deposits made for the year. If you overpaid, you can apply it to next year’s return or receive a refund. However, the IRS may apply the overpayment to a previous balance.
Distinguishing Between Form 943 and Other Forms
As you navigate the tax landscape, you will come across other forms, such as Form 940 and Form 941. Understanding the differences between these forms and Form 943 is critical for cannabis cultivators.
When launching a business, filing Form SS-4 to obtain a Federal Employer Identification Number (EIN) is mandatory. This 9-digit number is assigned to employers for tax filing and reporting purposes.
During this initial application, cultivators must decide whether to file Forms 940/941 or 943 for payroll. While most cannabis operators choose 940/941, cultivators face additional considerations as Form 943 applies in certain circumstances.
Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return:
Form 940 is the Employer’s Annual Federal Unemployment (FUTA) Tax Return. It’s filed once a year, but deposits are made quarterly. If your business files Form 940, it will also file Form 941.
The unemployment rate for a business depends on various factors, such as turnover rates and injury risks. An average business’s unemployment rate runs around 2-3%. At the end of the year, there is a federal unemployment tax rate of 0.006%. All payroll wages paid from January 1st to December 31st, up to $7,000 per employee, will be taxed.
It is important to note that some states, such as California, may have varying unemployment tax rates. This is due to bonds owed to the federal government. Being aware of these rates and their implications is crucial for businesses to remain in compliance with tax obligations.
Form 941 – Employer’s Quarterly Federal Tax Return:
Form 941 is the Employer’s Quarterly Federal Tax Return, serving two main purposes. It’s used to report income taxes, Social Security tax, or Medicare tax withheld from employee’s paychecks, and to pay the employer’s share of Social Security or Medicare tax. Form 941 is filed every quarter, and if your business is filing Form 941, you must also file Form 940.
It’s worth noting that 95% of business owners choose to file Form 941. Self-employed individuals, such as single-member LLCs, often find themselves surprised by the tax rate for FICA and Medicare, which amounts to 15.3%. They are responsible for both employee and employer contributions, leading to double taxation. Consequently, optimizing the tax structure of a cannabis business becomes crucial to manage these tax burdens effectively.
Form 943 – Employer’s Annual Federal Tax Return for Agricultural Employees
Form 943, on the other hand, is similar to Form 941 but is exclusively for agricultural employees. It is filed annually, not quarterly, and if you file Form 943, you don’t need to file Form 940. Importantly, Form 943 can only be filed for operations that are entirely agricultural/cultivation-based.
In the context of cannabis cultivators, if any part of the business involves non-agricultural work, say office work or janitorial work, you cannot file Form 943 for those employees. Instead, you must file Forms 941 & 940.
Navigating payroll tax forms can be daunting for cannabis operators, but neglecting these crucial details can lead to future penalties from the IRS. Pay close attention to tax accounting items like payroll forms to ensure compliance and avoid unnecessary financial burdens. Payroll tax forms are just one piece of the complex puzzle that cannabis businesses face regarding taxes.
Understanding the nuances of Forms 940, 941, and 943, cultivators can make informed decisions aligning with their business operations. If you ever need help with the applicable tax forms or need guidance on optimizing your business structure from a tax perspective, contact the experienced team at GreenGrowth CPAs. We specialize in preparing and filing every cannabis tax form, providing peace of mind that you are compliant and avoiding any over- or underpayment.