Small Business Health Care

Under the Affordable Care Act, small businesses and tax-exempt organizations that meet certain qualifications are eligible for a Small Business Health Care Tax Credit (SBHCTC). The credit can help you provide health insurance to your employees for the first time or maintain coverage you already offer.

The Small Business Health Care Tax Credit Estimator can help determine whether you’re eligible for the credit for the tax years 2014 and beyond and if so, estimate the amount.  An estimator is also available for tax years 2010-2013 – see What are my resources? for more information.

elegibility requirements for Small buisness health care tax credit

Download the full Small Business Health Care Tax Credit fact sheet.

Is your business or organization eligible for the credit?

Generally, you qualify for the credit if: 

  • You are a small business or tax-exempt employer
  • You pay at least half the cost of single coverage for your employees
  • You had fewer than 25 full-time equivalent (FTE) employees for the tax year
  • You paid average annual wages of less than $50,000.00 per FTE for the tax year

Starting in 2014, you also must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace, or qualify for an exception to this requirement. However, the exceptions are extremely limited.

Some notes about full-time equivalent (FTE) employees

To determine if you have fewer than 25 FTE employees, you have to consider how many hours each employee works.  

  • For purposes of this credit, full-time is 2,080 hours per tax year (40 hours a week).
  • Each employee can only equal a maximum of one FTE, even if he or she works over 2,080 hours.
  • But if you have multiple part-time employees, they can be added together to figure out the number of FTEs (for example, you have 10 employees who each work 1,040 hours, they count the same as five FTE employees). For more information, read the Instructions for IRS Form 8941

The instructions for IRS Form 8941, Credit for Small Employer Health Insurance Premiums include a worksheet to calculate your total FTE employees.

As of tax year 2014, to qualify for this credit, you must purchase insurance for your employees through the Small Business Health Options (SHOP) Marketplace.

To claim the credit, tax-exempt organizations have to file an IRS Form 990-T, Exempt Organization Business Income Tax Return, even if they don’t normally file one. 

For some tax-exempt organizations, the SBHCTC is a refundable credit. This means that if it’s more than the tax you owe, you may get a refund. Small businesses may be able to carry the credit back or forward to other tax years.

The amount of the credit changes over time. For tax years 2014 and later:

  • Small business employers can claim a credit of up to 50% of premiums paid
  • Tax-exempt organizations can claim up to 35% of the premiums paid

Beginning in 2014, the credit is only available to you for two consecutive years.

Small Business Health Care Tax Credit Estimator

SHOP marketplace 

Small Business HealthCare Tax Credit for Small Employers 

Small Business Health Care Tax Credit Estimator (2010-2013)

The rules for qualifying for the Small Business Healthcare Credit and the credit amounts allowed vary each year, so be sure to use the appropriate estimator based on the specific the tax year you need. The estimator for prior tax years can assist with qualifications and credit estimates in case small employers are considering amending an existing tax return.

For more information about the Affordable Care Act and how it affects your taxes, visit our ACA page.

Have a different tax issue? Browse common issues and situations at Get Help.

Is your tax problem more complex? If your issue is causing you financial hardship, you have tried repeatedly and are not receiving a response from the IRS, or you feel your taxpayer rights are being violated, consider contacting TAS.

Do you feel that you need help from a tax professional but can’t afford one? You may be eligible for representation from an attorney, certified public accountant (CPA), or enrolled agent associated with a Low Income Taxpayer Clinic.

Last modified January 11, 2016