Question

In 2023, Black Company paid wages of 180,000, of which40,000 was qualified for the Work Opportunity Tax Credit under the general rules. What is Black Company's deduction for wages for the year?

Answer 1

Black Company's deduction for wages for 2023 is the full amount of wages paid, which is $180,000. The Work Opportunity Tax Credit received for $40,000 of those wages does not alter the wage deduction amount on the company's income statement.

Step-by-step explanation:

In 2023, Black Company paid total wages of $180,000, and of that amount, $40,000 was qualified for the Work Opportunity Tax Credit (WOTC) under the general rules. The Work Opportunity Tax Credit is a federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.

To determine the company's deduction for wages for the year, we need to consider the total wages paid minus any credits the company is entitled to. However, the WOTC does not directly reduce the wage expense the company reports on its income statement. Instead, the tax credit is claimed against the taxes owed by the company. Thus, Black Company's deduction for wages is still the full $180,000 since wage deductions are generally not reduced by tax credits.