Is an employee bonus line 26 or line 14?

Cash and cash-equivalent rewards are wages on line 26; contributions to an employee benefit program such as a health or dependent care plan are line 14.

Is an employee bonus line 26 or not deductible?

A bonus you pay yourself is not deductible, because a sole proprietor cannot be their own employee.

Where does an employee bonus go on Schedule C? Line 26

Q: Where does an employee bonus go on Schedule C?

An employee bonus belongs on Line 26, wages. A bonus is compensation, so it goes on line 26 with the rest of the wages and it has to run through payroll with withholding. The amount has to be reasonable for the services actually performed, which is what gets tested when the recipient is a family member. A gift card or a turkey handed to staff is also compensation if it has a cash equivalent value, and a cash bonus never qualifies as a de minimis fringe benefit however small it is.

Short answer Schedule C, Line 26 Wages

An employee bonus belongs on Line 26, wages.

Why line 26

A bonus is compensation, so it goes on line 26 with the rest of the wages and it has to run through payroll with withholding. The amount has to be reasonable for the services actually performed, which is what gets tested when the recipient is a family member. A gift card or a turkey handed to staff is also compensation if it has a cash equivalent value, and a cash bonus never qualifies as a de minimis fringe benefit however small it is.

Stop looking up lines one at a time. ClaryBook totals your year into an IRS Schedule C worksheet in form order, Part I and Part II line by line, so an employee bonus lands on Line 26 without you sorting it.

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What an employee bonus is confused with

Line 14, employee benefit programs: Cash and cash-equivalent rewards are wages on line 26; contributions to an employee benefit program such as a health or dependent care plan are line 14.
not deductible, not deductible: A bonus you pay yourself is not deductible, because a sole proprietor cannot be their own employee.
Line 27a, other expenses: A gift to a client is not compensation and is itemised in Part V with its own per-recipient annual cap; a gift of cash value to an employee is payroll.

Examples that belong on line 26

A $2,000 year-end bonus to a long-serving employee
$500 project completion bonuses to each of three staff
$300 of gift cards given to staff, run through payroll
A $1,200 referral bonus paid to an employee who brought in a client
$750 of commission-style bonus to a sales employee

What does not belong here

A bonus to yourself as the owner.
Gift cards handed over without payroll treatment.
An unreasonable bonus to a family member relative to the work done.
A bonus accrued on a cash-basis return before it was actually paid.

The limit that applies

Must be reasonable for the services performed. Cash and cash equivalents, including gift cards, are taxable wages and cannot be treated as de minimis fringe benefits.

What to keep

Keep the payroll record showing the bonus, the withholding on it and the date paid, plus a short note of what it was for. For family members, keep the evidence of the hours and duties that make the amount reasonable.

Other expenses on line 26

Expense	Line
an employee's gross wages	Schedule C, Line 26
payments to your spouse	Schedule C, Line 26
vacation and sick pay	Schedule C, Line 26
wages paid to your own child	Schedule C, Line 26

Related lookups

Sources

This page explains how Schedule C lines work. It is general information, not tax advice for your situation. If an expense is large or the answer turns on a fact about your business, confirm it with your tax preparer.

Looking for a different expense? The full Schedule C line lookup has every line from 8 to 27 with the expenses that belong on each, and Schedule C expense categories walks the whole form in order.

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