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The Small Business Health Care Tax Credit


Full-Time Equivalent Employees (FTEs)

You can generally calculate your FTEs by adding up the hours for all of your employees and then dividing that by 2,080 (which is a full time employee - 40 hours a week at 52 weeks per year).

Count both the time your employees worked for you and for the time that you paid (and were supposed to pay) them for time off, such as vacation, holidays, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.

Also, if any of your employees took more than 160 hours of continuous paid time off (as described above) you only need to count the first 160 hours. If your employees have more than 2,080 hours, only count the first 2,080.

You can count your employees' time by one of three methods:

  1. Actual Hours: Determine actual hours of service from records of hours worked and hours for which payment is made or due.
  2. Days-worked equivalency: Your employee is credited with 8 hours of work each day he or she worked (and received paid time off) for you at least one hour.
  3. Weeks-worked equivalency: Your employee is credited with 40 hours of work for each week he or she worked (and received paid time off) for you at least one hour.

Your credit will begin to phase out if you have more than 10 FTEs and will fall to zero if you have 25 or more.

Generally, all employees who perform services for you during the tax year are taken into account in determining your FTEs.

However, certain types of employees receive special treatment and some are not counted at all.

If you have employees that fall into any of the categories discussed, see the Instructions for Form 8941 for how to account for them.

Employees Receiving Special Treatment

Leased Employees

If you employ people from a leasing organization, premiums paid by the organization are not counted when computing your credit. Under certain circumstances, leased employees count only partially or not at all.

Seasonal Employees

If you have seasonal employees who work for you 120 days out of the year or fewer, they are not included when calculating your FTEs. However, the premiums you pay for their insurance coverage count in computing your credit.

Household and Other Nonbusiness Employees

If you are a sole proprietor, these employees are included with your business employees when computing the credit.


If you employ ministers and they are considered employees under the common-law test for determining worker status, they are included in calculating your FTEs.

Employees Not Counted

Certain types of employees are not considered employees for purposes of the credit. When calculating your FTEs, do not include:

  • The owner of a sole proprietorship,
  • A partner in a partnership,
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 2% of an S corporation,
  • A shareholder who owns (after applying the section 318 constructive ownership rules) more than 5% of the outstanding stock or stock possessing more than 5% of the total combined voting power of all stock of a corporation that is not an S corporation,
  • A person who owns more than 5% of the capital or profits interest in any other business that is not a corporation, and
  • Family members or a member of the household who is not a family member but qualifies as a dependent on the individual income tax return of a person listed above. Family members include:
    • A spouse,
    • A child (or descendant of a child),
    • A sibling or step-sibling,
    • A parent (or ancestor of a parent),
    • A step-parent,
    • A niece or nephew,
    • An aunt or uncle, or
    • A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.