For decades, a subculture of migrant workers have flooded California counties every year to make good money trimming marijuana plants. Known as “trimmigrants,” these individuals have made as much as $500/day and up to $15,000 in cash and/or product during the fall harvest — and we would be surprised if any of them ever paid taxes on that income.
With cannabis legalization, the trimmigrant heyday is coming to an end. Aside from the growing market availability of automated trimming machines which are threatening to make manual trimming obsolete, marijuana regulation is putting an end to the ability of the now state-legal cannabusinesses to hire and pay people under the table.
Trimmers are now being paid through salaries or issued 1099’s, and are expected to pay their fair share of taxes – both on their cash income and on any product they receive as compensation. If a trimmer does not provide their tax identification number to their employer, backup holding may also apply.
Taxation of bartered income
The exchange of products and/or services, otherwise known as “barter,” may take place informally between individuals or businesses, or through a third party barter exchange company. For tax purposes, the services or property exchanged must be valued in advance by the parties involved – this is usually the fair market value unless shown to be otherwise.
The fair market value of the service or product received as barter must be included in the taxpayer’s gross income for the year it was received, and is reported on Form 1040, Schedule C. In barters involving a third party barter exchange company, the company is required to issue a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to their clients and to the IRS, unless it engages in less than 100 transactions per year, the exchange was made with certain exempt foreign persons, or the exchange involved property or services valued at less than $1 (see IRS Publication 525, Taxable and Nontaxable Income).
All others who exchange services and products (including marijuana growers and trimmers) generally need to file a Form 1099-MISC.
Tax lawyers for the marijuana industry
The attorneys and accountants who comprise the Cannabis Law Group at Moskowitz, LLP are committed to the needs of the evolving cannabis industry. For help with all your marijuana taxation issues, contact our San Francisco offices today.