Small Business Health Insurance Tax Credit

If you are a small business owner already providing health insurance coverage to your full-time employees, you may be eligible to receive a substantial health care tax credit. Although the ACA (Affordable Care Act) does not require small businesses or companies to provide health insurance, it does offer incentives for eligible firms. These are companies that choose to provide business health insurance coverage to their workers for the first time or maintain their existing coverage.

The aim of the Small Business health care tax credit is to offset the costs that tax-exempt organizations and smaller enterprises incur when they pay for health insurance plans for their full-time employees. However, for you to qualify for health care tax credit, you have to meet specific criteria.

Here is everything you need to know about the plan to take advantage of the Small Business Health Care Tax Credit and benefit from it.

What Is the Health Care Tax Credit for Small Business?

Specific provisions of the AFA apply only to small businesses. For instance, exclusive health insurance options are only available to employers with fewer 50 full-time employees through the SHOP health insurance or the small business health options program.

The Small Business health care tax credit for small businesses is another feature of the ACA, but it is limited to employers with fewer than 25 full-time equivalent employees. It is a sliding-scale credit that depends on the scale of the employer’s business. The bigger the employer is, the smaller their tax credit is, and the smaller the employer, the larger the health care tax credit. The maximum credit is 50% of premium health insurance plans paid for small employers and 35% for small tax-exempt organizations.

The Small Business healthcare tax credit is obtainable by eligible small businesses for two consecutive tax years. If you operate or own a qualified smaller scale business and do not owe tax during any one year, the credit can be carried forward or back to other tax years.

If you want to claim a healthcare tax credit for your small business, you need to fill out a form provided by the IRS’s (Internal Revenue Service).

Who is Eligible for the Small Business Health Care Tax Credit?

If a business owner has fewer than 25 employees or workers who work over 30 hours per week and makes an average of $50,000 annually or less, you may qualify for the health care tax credit.But before planning what you will do with the windfall that you will receive, keep these restrictions in mind:

  • A business owner must purchase coverage through the SHOP’s marketplace or through a licensed agent who can enroll you in the SHOP plan.
  • An employer must pay at least 50 percent of their employee’s healthcare premium fees.
  • Business owners do not need to offer coverage to part-time employees or those working less than 30 hours per week to qualify for the tax credit.
  • Employers do not need to provide coverage for dependents to be eligible for the tax credit.
  • Seasonal employees are not full-time employees unless they have worked for your business for over 120 days during the tax year.
  • If an employer contributes less than 50% to cover the rest of their worker’s family, they can claim the credit for these contributions.
  • If an owner has less than 25 employees that work full time for the tax year, they are qualified to claim the tax credit.
  • An employer needs to pay an average wage of $50,000 or less annually for all employees.

The average yearly salary of employees cannot be over $54,000 if you want to qualify for the tax credit. The entire 50% of the credit is for FTE employees that make around $26,000 annually, and the percentage goes down as their salary increases.

If you want to find out if you qualify to receive the tax credit, you can use the Internal Revenue Service’s estimator. It can help you determine if you meet the requirements, and it also estimates the credit amount you can receive. You can use the approximate credit to help you decide if the potential credits are worth claiming.

How Much Is the Small Business Health Care Tax Credit?

The credits may be worth up to 50% of your contribution to your employees’ health insurance premium costs. The smaller your business or company is, the more significant tax credit you will receive. For instance, the credit is at its peak for firms with fewer than ten employees, and employers pay them an average wage of $25,000 or less.

Here is a scenario offered by the Internal Revenue Service:

  • The number of workers in the business: 10
  • The annual salaries of the employees: $250,000
  • The yearly wages of each employee: $25,000
  • The business owner’s contribution to its employee’s health insurance premium costs: $70,000
  • The total tax credit amount that employers will receive is $35,000 (50% of employers’ contribution)

How to Claim the Small Business Health Care Tax Credit

If you have decided to pay for a group health plan to your workers, you can calculate and claim the tax credit using IRS’s Form 8941. The instructions form provides a chart for listing each employee you have, the total hours they have worked during the tax year, and how much you have paid them. It is typically numbered 1 to 25, which is a helpful reminder that you cannot have over 25 employees that work full time.

Employee benefits and wagers, including spending on health insurance plans, is a standard small-business tax deduction. But during the two consecutive tax years that a business owner claims the credit, they will subtract the total funds they claim in the tax credit from what they are claiming as a small business deduction. Once the two tax years have passed, employers can go back to claim the amount they pay their employee’s health insurance as a deduction.



If you do not qualify for the tax credit, you can opt for group health insurance plans or deduction for employee premium payments to garner incentives for the improvement of your business and profit.

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