Article Date:
December 2021

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Tax Credits for Schedule C Business Owners with Employees

Congress encourages businesses to hire employees and provide them with various benefits.


If you hire an employee for your Schedule C business, you can qualify for several valuable tax credits.


Except for the temporary COVID-19-related credits discussed later in this article, these are all non-refundable credits that cannot exceed your tax liability. The general business credit collects them, along with 24 other credits, and then imposes an overall limit, as we explain.


You report the credits on IRS Form 3800, General Business Tax Credit, and on Schedule 3 of Form 1040.


Each credit is different. But certain limitations apply to all or most employer tax credits.


No Multiple Credits for the Same Wages


Generally, you cannot use the wages used to calculate one wage-based credit for another wage-based credit.


For example, you can’t claim the Work Opportunity Tax Credit (WOTC) and the Empowerment Zone Employment (EZE) credit for the same wages. But this doesn’t prevent you from claiming more than one wage-based credit for the same employee. You may do so, provided the same wages are not used to calculate each credit.


For example, you may claim the WOTC and the EZE credit on wages paid to the same employee, provided that any wages used to calculate the WOTC are not also used to calculate the EZE credit.


No Double Tax Benefit Allowed


Ordinarily, you may fully deduct the total wages you pay to your employees. But you must reduce your deductible wages by the amount of any wage-based employer credit you claim.


For example, you reduce the wages you report on line 26 of Schedule C for ... Log in to view full article.

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