A Hand Up for Businesses: The Small Business Health Care Tax Credit

small business health care tax creditAccording to the U.S. Census Bureau, 89.6% of the 5.73 million businesses in the country have less than 20 employees; 80% of those businesses fail within the first 18 months. It is essential that small businesses find ways to save money, explore opportunities, and increase their bottom line (and their survival rate).  For many businesses that provide healthcare coverage to employees, the Small Business Health Care Tax Credit could be an easy way to save money on those large monthly healthcare bills.

How does a business qualify?

To qualify for the Small Business Health Care Tax Credit, a company must fulfill the following requirements:

  1. Employ no more than 25 full-time equivalent employees.
  2. Pay average employee wages no greater than $52,400—inflation adjustments apply.
  3. Cover at least 50% of full-time employees’ healthcare premiums.
  4. Purchase employee insurance through the Small Business Health Options Program Marketplace.

What constitutes a “full-time equivalent” employee?

For the Small Business Health Care Tax Credit, two employees working 20 hours a week can be added together to equal one full-time employee. For example, 50 employees working 20 hours a week would be equivalent to 25 full-time employees.  It is important to note that the owner, and any of his/her family members working for the company, will not be counted toward the 25-employee quota.

How is this healthcare credit so beneficial to small business owners?

Tax-paying companies are eligible to receive up to a 50% credit on their healthcare bills, while tax-exempt companies could receive a 35% credit. As many business owners know, medical bills can quickly add up–controlling those costs allows business owners to allocate funds elsewhere—e.g., for making strategic hires, buying innovative equipment, or investing in training programs.  When sacrifices are made under the constraints of a small business budget, the opportunity to halve the premiums can be a game-changer.

What tax forms are needed when filing for the credit?

The tax form required depends on whether the company is a tax-paying entity or not. For taxpayers, Form 8941 will be used to calculate the credit, and will be attached to the business tax return. Tax-exempt entities will need to include form 990-T.

Businesses can check to see if they might qualify for the tax credit by accessing the Small Business Health Care Tax Credit Estimator on healthcare.gov.

If you have any questions about the Small Business Health Care Tax Credit, or would like to request a speaker on this topic for your organization or event, contact one of our executives below at (800) 270-9629.

Mark Estroff

Mark Estroff


Heather Martin

Heather Martin

Senior Manager

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