Understanding the Small Business Health Care Tax Credit

Understanding the Small Business Health Care Tax Credit text overlaying image of a pen and calculator over tax documentsWhen searching for a group health insurance plan for your business, there are many factors to consider. Benefits and network size are vitally important, but for many, the associated cost is the biggest consideration. If you are a small business with limited resources, you probably want all the help that you can get when it comes to affordability. Before you get too frustrated, just know that there is in fact light at the end of the tunnel. In this case, the light is the Small Business Health Care Tax Credit.


This tax credit was originally created to help small businesses better handle the often-high costs associated with employee healthcare. If your business can qualify, it can help you ensure quality health benefits to your workforce without breaking the bank. As a business owner, it’s your job to make sure your finances are in order. So, it will benefit you greatly to learn more about this tax credit and what it can do for you!

Origins of the Small Business Health Care Tax Credit 

Initially signed into law in 2010, the Small Business Health Care Tax Credit was created as part of the Affordable Care Act (ACA). As a whole, the mission of the ACA is to make healthcare coverage affordable and accessible for all Americans. When looking at the oversights of the healthcare industry, founders recognized the hardships that many small businesses faced in providing their employees with a proper benefits package. Keeping this in mind the ACA made provisions to the act to include The Small Business Health Care Tax Credit. In general, the tax credit aims to encourage the number of small businesses that are able to offer health insurance coverage for their workforce. In turn the expectation was for employee health and well-being to increase. And for associated costs for the business owners to decrease.

Requirements of Qualification 

In order for your company to reap the benefits of the Small Business Health Care Tax Credit, there are certain characteristics and criteria that the business must meet. Here are the main requirements:


  • Number of Employees: Your business must have less than 25 full-time equivalent employees. This is calculated by looking at the total number of hours worked by part-time employees. Then making them equivalent to a full-time employee. For example, two employees that both work 20 hours per week, equal one full time employee. 
  • Average Yearly Salary: The average salary of your employees must be around or below the current threshold of $56,000 per year. This threshold number can change from year to year, so be sure to check up on the most recent requirements. 
  • Owner Contribution: As the employer, you must contribute at least 50% of your full-time employees premium costs. Again, this percentage can change from year to year. 
  • SHOP Coverage: Lastly, you must offer health coverage to employees through the Small Business Health Options Program (SHOP) Marketplace. Keep in mind that you will not need to offer SHOP coverage to the dependents of full-time employees or employees who work less than 30 hours per week. 

Benefits of the Small Business Health Care Tax Credit

So, if you’re still reading, that probably means that your business is able to qualify for the tax credit. Now, you may be saying to yourself — saving money sounds great and all, but what are all the upsides of claiming the credit? We’re here to help:

Potential Savings

Probably the most sought-after benefit of the Small Business Health Care Tax Credit is cost savings. If qualified, you will be able to use this tax credit to cover a portion of your employee health insurance premiums. By reducing your overall cost, you’ll be able to use the money you saved for other areas in your organization. In general, the smaller your company is, the bigger credit you will receive. With that said, the maximum credit is 50% of employee health insurance premiums for small businesses owners. And 35% of employee health insurance premiums for small tax-exempt employers. Keep in mind that you can only qualify for the Small Business Health Care Tax Credit for two consecutive years. 

Employee Retention and Attraction

When it comes to your current and future employees, this tax credit can make a huge difference. When you offer employees a solid benefits package, they will likely be more engaged, productive and happy at work. Making them less likely to seek out other job opportunities. Additionally, when vetting the market for new, top talent, an employee insurance package can be enticing. It will help make your business a top candidate. 

Tax Benefits and Business Growth

By qualifying for the tax credit, the amount of taxes that you owe will be lowered. With some relief provided, you can reinvest a portion of the money you saved back into your business. You will be enabled to help your company grow faster, since the financial burden of high taxes will be somewhat relieved. This could allow you to invest in new projects or expand your business where you see fit. 

Healthier Employees

Studies show that when employees have access to healthcare services such as preventative care and prescription medications, they will be healthier overall and therefore more productive while working. You may notice that when your employees’ health is taken care of the number of sick and absent days will be reduced.

Reputational Impact

If you are able to provide health insurance coverage to your employees with the help of the tax credit, your company’s reputation will increase. Not only employees, but also competitors and prospects will notice your commitment to employee wellbeing.

Claiming the Tax Credit

If you are still with us, that means you’re likely highly interested in claiming the Small Business Health Care Tax Credit. To do so, there is a certain procedure that you must follow:


  • Check Eligibility: The first step is to determine whether or not you actually qualify for the tax credit. Take time to go through the aforementioned qualifications and requirements. If you are feeling uncertain in any way, it will benefit you to speak with an expert such as an experienced tax professional. Additionally, the IRS serves as a great resource offering an abundance of information about eligibility. 
  • Calculate Your Credit Amount: Next, you’ll need to figure out how much of a tax credit your business qualifies for. The IRS has a worksheet that is used to help calculate this number. When filling out this sheet, you will need to have employee information on hand such as the number of hours they work, wages earned, and premiums paid. At the end of this process you should have a good idea of how much credit you are eligible for. 
  • Fill out Form 8941: The next step is to fill out form 8941 also known as the Credit for Small Employer Health Insurance Premiums. This form is how you officially claim the tax credit. After filling it out, you must attach this form to your business tax return before sending it in.
  • Claim the Credit: Now with form 8941 completed, you are all ready to actually claim your tax credit. Created to help directly reduce the taxes that you pay, the Small Business Health Care Tax Credit can be claimed on your personal (Form 1040) or your business (Form 1120) tax return depending on the structure of your company. 

Keep in Mind…

Taking advantage of the Small Business Health Care Tax Credit can help to relieve small businesses, but it’s vitally important that you remain informed on all of the moving parts. On a yearly basis, there are changes made to the guidelines of the credit, including changes to eligibility, tax regulations, and other employee healthcare rules. In addition to our guide, it’s important to do your own research, looking at government resources, and if necessary talk to a tax specialist or accountant. 

Wrapping Up

The Small Business Health Care Tax Credit helps business owners save money on the premiums that they pay for a group health insurance plan. Additionally, these savings will enable you to provide top notch health benefits to your employees. During this process, it is important to first understand what it means to qualify. Pay attention to company details such as the number of employees, the average yearly wages, the amount of premium cost that you contribute and the health coverage that you offer to full time employees.


Once you’ve determined your qualification status, it’s imperative that you follow the discussed procedures to successfully claim your credit. By taking advantage of this tax credit, your employees will be happier knowing that you care about their quality of life, and you’ll have more money left over to reinvest in your company’s future. It’s a win-win situation. So what are you waiting for? Save money and reduce your stress today!


If you are a business owner who is searching for a quality health insurance plan for your employees for a fair price, GHQ is the place for you! We have licensed insurance experts who work around the clock to ensure that your insurance shopping experience is simple, easy and worth your time. Our quote comparison tool lets you look at the top group plans in your area side-by-side ensuring that you get matched with a package that fits your needs. To get a free quote today, simply fill out a form or give us a call at 888-571-0291.

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Sydney Berry

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