Schedule C Expenses - Wages
When filing your tax return using Schedule C (Form 1040), you may deduct wages paid to employees as a business expense. These wages must be ordinary and necessary for your trade or business and directly related to generating income.
What Wages Can Be Deducted?
- Salaries and wages paid to employees for services rendered in your business.
- Wages must be documented and reported on Form W-2 or Form 1099-NEC, depending on the employee’s status.
- Include all compensation, including bonuses, commissions, and fringe benefits, if they are part of the employee’s pay.
Reporting Wages on Schedule C
Enter the total salaries and wages paid during the tax year on Line 26 of Schedule C. This amount should be reduced by any applicable employment tax credits, such as:
- Work Opportunity Credit (Form 5884)
- Empowerment Zone Employment Credit (Form 8844)
- Credit for Employer Differential Wage Payments (Form 8932)
Note: If you are a statutory employee, you must file a separate Schedule C for statutory employee income and cannot combine it with self-employment income on a single Schedule C.
Important Considerations
- Wages must be paid to employees, not independent contractors. Independent contractors should be reported on Form 1099-NEC, not Schedule C.
- Do not include personal, living, or family expenses in your business wage deductions.
- Ensure all wage payments are properly documented and reported to comply with IRS regulations.
Source:
Schedule C (Form 1040) Instructions
Disclaimer: Always verify information with the official Federal or State Department of Revenue Forms and Instructions.