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Understanding the Small Business Health Care Tax Credit

Tax takeaways

The Small Business Health Care Tax Credit is designed to encourage small businesses and small tax-exempt employers to offer health insurance coverage to their employees. In general, an employer may be eligible for the credit for tax year 2016 if it:

  • Had fewer than 25 full-time equivalent employees
  • Paid an average wage of less than $52,000 a year
  • Paid at least half of employee health insurance premiums
  • Paid premiums on behalf of employees enrolled in a qualified health plan offered through the Small Business Health Options Program (SHOP) Marketplace or Covered California

Key Facts

Employers seeking to claim the credit should know the following key facts:

  • The maximum credit is 50% of premiums paid for small business employers and 35% of premiums paid for small tax-exempt employers.
  • Small employers may claim the credit for no more than two consecutive taxable years, beginning in tax year 2014.
  • Eligible small employers (other than those that are tax-exempt) may claim the credit on their annual income tax returns, with an attached Form 8941, Credit for Small Employer Health Insurance Premiums, showing the calculation of the credit.

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