The Small Business Health Care Tax Credit helps qualifying small employers afford health coverage for their employees. Despite offering a credit of up to 50% of employer-paid premiums, the credit is claimed by a fraction of eligible businesses—often because owners are not aware it exists or assume they do not qualify.
Who Qualifies
To qualify, a small business must: (1) have fewer than 25 full-time equivalent employees, (2) pay average wages of less than $56,000 per year (2024), and (3) pay at least 50% of employee health insurance premiums. The full credit applies to businesses with 10 or fewer employees and average wages under $27,000; a partial credit applies above those thresholds.
How the Credit Works
The credit equals up to 50% of employer-paid premiums (35% for tax-exempt organizations). It is only available for two consecutive tax years and is available only if insurance is purchased through the Small Business Health Options Program (SHOP) marketplace. The credit can be carried back one year or forward 20 years if your tax liability is less than the credit amount.
Key Takeaways
- Credit is up to 50% of employer premium costs—significant savings for small employers offering health coverage.
- Must have fewer than 25 FTE employees, average wages below $56K, and buy through SHOP marketplace.
- Available for only two consecutive tax years—plan accordingly.
