Wages line
Schedule C line 26 ("Wages") shows total W-2 wages paid (less any employment credits taken). Employer-side payroll taxes (Social Security, Medicare, FUTA, state unemployment) go on Schedule C line 23 ("Taxes and licenses").
Reasonable compensation
Wages must be reasonable for the services rendered. Excessive wages to family members can be reclassified as gifts. S-corp owner-employees must take "reasonable compensation" before distributions — failure to do so is a common audit issue with significant payroll-tax consequences.
Family member wages
Wages paid to your spouse, children, and parents are deductible as long as they perform actual services and the wages are reasonable. Children under 18 working in a sole proprietorship owned by their parent are exempt from FICA — a meaningful tax-saving for family-run businesses.
Employment credits
Several credits (Work Opportunity Tax Credit, employer-provided childcare credit, family and medical leave credit) reduce the deductible wage amount by the credit. The credit produces a dollar-for-dollar tax benefit; the wage deduction reduction merely avoids double-benefiting from the same dollars.
Independent contractors not on this line
1099-NEC payments to independent contractors go on Schedule C line 11 ("Contract labor"), not line 26 ("Wages"). Mis-classifying contractor payments as wages (or vice versa) can confuse the IRS and complicate audit defense.
Where this fits in the larger Schedule C picture
Schedule C has more than two dozen named expense lines plus an "Other expenses" catch-all. For most small businesses, four or five lines drive the bulk of the deduction total — vehicle, home office, depreciation, contract labor or wages, and supplies — and the remaining lines individually contribute small amounts that nevertheless add up. Treating each named line as a recurring decision rather than an afterthought, and revisiting the categories each January, often surfaces $2,000–$5,000 in additional legitimate deductions that a less disciplined process would have missed entirely.
Documentation that survives an exam
An IRS examination of this deduction will request three things: proof of payment (bank or card statement), proof of the underlying transaction (invoice or receipt), and proof of business purpose (a contemporaneous note or calendar entry). The first two are usually trivial to produce; the third is where most filers fall short. Capturing business purpose at the moment of the expense — a one-line note in your bookkeeping software or a category and memo on the receipt-capture app — converts a generic charge into a documented deduction that will withstand scrutiny three to six years later when memory has faded.