If you employ fewer than 25 full-time equivalent workers and pay average annual wages under $69,000 in 2026, you likely qualify for the Small Business Health Care Tax Credit, worth up to 50% of your premium contributions (35% for tax-exempt employers). Start by running the free SHOP Tax Credit Estimator to see a real number before you touch a single form.
TL;DR:
- Employers with fewer than 25 full-time equivalent employees and wages under $69,000 in 2026 qualify for a tax credit covering up to 50% of premiums.
- The credit is available only for two consecutive years, requiring timely enrollment through the SHOP Marketplace to claim the benefit.
- You must pay at least 50% of employee-only premiums and meet specific exclusion rules for family members, seasonal, or leased workers to qualify.
- The maximum credit rate for for-profit businesses is 50%, which is nonrefundable, while tax-exempt organizations receive a capped refundable credit based on payroll taxes.
- Preparing Form 8941 with accurate worksheets, supporting documentation, and considering state subsidies is essential for correct filing and maximizing the credit.
Table of Contents
- Who qualifies: FTE counts, wage limits, and the two-year rule
- What the credit actually pays: percentages, refunds, and the math behind them
- Why SHOP enrollment usually comes before the credit
- Filing the credit: Form 8941, Form 990-T, and the worksheets that matter
- How state subsidies and a few special cases change the math
- A practical checklist before you sit down to file
- How we help with eligibility checks and SHOP enrollment
- When pursuing the credit is actually worth the effort
- Get a SHOP eligibility check from an independent agency
- FAQ
- Sources
Who qualifies: FTE counts, wage limits, and the two-year rule
Eligibility hinges on three tests, and all three have to be met together. First, you need fewer than 25 full-time equivalent employees, calculated on a 40-hour basis where two 20-hour part-timers combine into one FTE. Second, average annual wages must fall below the 2026 phaseout ceiling of $69,000, with the reduction beginning above roughly $34,000. Third, you need to pay at least 50% of employee-only premium costs under a qualifying arrangement.
A few exclusions trip people up every year:
- Family members of a business owner and shareholders who own more than 2% of an S-corporation do not count toward your FTE total.
- Seasonal workers employed 120 days or fewer in a tax year are excluded from the FTE calculation, even though premiums paid for them can still count toward the credit.
- Leased employees generally follow different counting rules, so check your arrangement before assuming they are excluded.
One detail catches many employers off guard: the credit is only available for two consecutive tax years total. Once you have claimed it for two years, you cannot claim it again, even if your business circumstances change later. That makes timing your first claim a real decision, not just a formality.
What the credit actually pays: percentages, refunds, and the math behind them
The maximum credit rate is 50% for for-profit employers and 35% for tax-exempt organizations, and that difference matters for how you actually receive the money. For-profit businesses claim a nonrefundable general business credit, meaning it offsets tax owed but will not generate a refund by itself. Tax-exempt employers get a refundable credit instead, though the refund is capped by the payroll taxes the organization paid during the year.
The maximum percentages shrink fast as your numbers climb. Your actual credit depends on:
- Your FTE count, since more employees above the smallest tiers reduce the percentage you can claim.
- Your average annual wage, with the credit phasing out steadily between roughly $34,000 and $69,000.
- Your adjusted average premiums, which account for any state subsidies or credits applied to the same coverage.
Smaller, lower-wage employers consistently get the largest share of the benefit, which is why it pays to run the numbers early rather than assume the credit is too small to bother with. Form 8941 includes the worksheets you need for an exact figure, and the SHOP Tax Credit Estimator gives you a fast approximation before you commit to the paperwork.
Why SHOP enrollment usually comes before the credit
Enrolling through the SHOP Marketplace is generally the required path to claim this credit. That surprises a lot of business owners who already have a group plan through a private carrier, since SHOP eligibility is not automatic just because you offer coverage.
A practical way to work through it:
- Confirm SHOP plans are actually available in your county, since some areas have limited or no SHOP offerings.
- Check your state’s minimum participation rate requirement, since states set their own thresholds for how many eligible employees must enroll.
- If SHOP is unavailable where you operate, look into the IRS exceptions that allow alternative coverage to still qualify.
- Keep your SHOP enrollment confirmation and marketplace identifier on file, since you will need them when you file.
Pro Tip: Call the SHOP call center or your state’s Department of Insurance before assuming you don’t meet participation minimums; rules vary more by state than most employers expect.
Working through a broker rather than applying directly often smooths this process, particularly when a county’s SHOP availability or participation math gets complicated.
Filing the credit: Form 8941, Form 990-T, and the worksheets that matter
For-profit employers prepare Form 8941 and attach it to their annual return, folding the result into Form 3800 as part of the general business credit. Tax-exempt organizations take a different route: they file Form 990-T with Form 8941 attached, even if they would not otherwise be required to file a 990-T that year. Skipping that filing is one of the most common reasons tax-exempt employers miss out on a refund they actually earned.
Form 8941 itself contains several worksheets you need to work through in order: one for FTE calculations, one for average annual wages, and one for premium adjustments that account for state subsidies. Rushing past these worksheets is where most filing errors happen, particularly around double-counting excluded employees or using gross premiums instead of adjusted ones.
Before you file, gather:
- Payroll reports covering the full tax year, used for both the FTE and wage worksheets.
- Premium invoices showing exactly what your business paid toward employee coverage.
- SHOP enrollment confirmations and any correspondence tied to your marketplace identifier.
Hold onto everything for at least three years in case of an IRS inquiry into how the credit was calculated.
How state subsidies and a few special cases change the math
If your state offers its own premium subsidy or tax credit for small employer health coverage, you need to subtract that amount before calculating your federal credit, since the federal credit applies only to the net premium you actually paid. Skipping this step is a common way employers overstate their claim.
A handful of regional quirks are worth knowing:
- Hawaii operates under a Section 1332 waiver that blocks SHOP participation for certain plan years, which in turn blocks the federal credit for employers there during those years.
- Some counties have documented SHOP availability gaps, and CMS or IRS notices occasionally grant relief for employers in those areas.
- When your situation does not fit the standard rules cleanly, your state Department of Insurance or the SHOP call center can usually tell you which exception, if any, applies.
A practical checklist before you sit down to file
Pulling the right documents together ahead of time turns a confusing process into a fairly mechanical one. Work through this order:
- Run the SHOP Tax Credit Estimator first and save the results, since you will want them as a reference point later.
- Gather payroll reports, premium invoices, and your SHOP enrollment confirmation or marketplace identifier.
- Pull your employee enrollment list along with documentation proving you paid at least 50% of employee-only premiums.
- Collect any state subsidy notices and records of wellness program surcharges that might affect your premium calculations.
- Complete the Form 8941 worksheets using these documents, then attach the finished form to your return (or your Form 990-T if you are tax-exempt).
Pro Tip: Screenshot or print your SHOP estimator results the day you run them; if your actual filing numbers come out different later, that saved estimate helps you spot the discrepancy fast.
How we help with eligibility checks and SHOP enrollment
As an independent agency, we offer SHOP eligibility checks, quotes across multiple carriers, and enrollment assistance for businesses with a range of employee sizes. We help you pull together the documentation that supports your credit claim, from SHOP confirmations to premium records, without the pressure of a single-carrier sales pitch. If you want a clearer picture of your small business health plan options before you enroll, that is a conversation we have often.
When pursuing the credit is actually worth the effort
Employers with fewer than 10 FTEs and modest average wages capture most of the real value here, and for them the paperwork is a small price for a meaningful credit. If your numbers put you near the phaseout thresholds, run the SHOP Tax Credit Estimator and talk to a tax advisor before you restructure anything, including plan design choices like those described in this HDHP overview from Platinum Benefit Advisors. When you only marginally qualify, document everything carefully and consider getting professional help for that filing year specifically, since a small error can cost you the entire claim.
— Pounds Health Insurance
Get a SHOP eligibility check from an independent agency
We offer SHOP eligibility checks, carrier comparisons, and enrollment support tailored for small business owners. Visit our Small Business Health Plans page for a written estimate and your SHOP identifiers, no obligation attached.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
FAQ
Can small businesses get tax write-offs for health insurance?
Yes, premiums you pay toward employee coverage are generally deductible as a business expense, separate from the Small Business Health Care Tax Credit itself. The credit is an added incentive on top of that deduction for employers who meet the FTE and wage requirements set by the IRS.
What is the health care tax credit?
The Small Business Health Care Tax Credit offsets a portion of the premiums small employers pay toward employee health coverage, up to 50% for for-profit businesses and 35% for tax-exempt organizations. It generally requires enrolling employees through the SHOP Marketplace and is available for two consecutive tax years.
Will there still be tax credits for health insurance in 2026?
Yes, the Small Business Health Care Tax Credit remains available in 2026 under existing IRS rules, with the average wage phaseout reaching $69,000 for that tax year. Eligibility still requires SHOP enrollment in most cases, so confirming plan availability in your county is a sensible first step.
What are the eligibility limits employers should watch for?
An eligible employer generally needs fewer than 25 full-time equivalent employees and average annual wages below the current phaseout ceiling, which sits at $69,000 for 2026. Employers also need to pay at least 50% of employee-only premium costs to qualify.
