Small Business Health Care Tax Credit calculator

You're an eligible small employer for the tax year, under those instructions, if you meet three requirements. You paid premiums for employee health insurance coverage under a qualifying arrangement, which generally requires you to pay a uniform percentage, not less than 50%, of the premium cost for each enrolled employee's coverage, with limited exceptions described in the instructions and in Regulations section 1.45R-4. You had fewer than 25 full-time equivalent employees for the tax year. And you paid average annual wages of less than $67,000 per full-time equivalent for 2025, or less than $69,000 under the 2026 draft. The instructions caution that an employer with exactly 25 full-time equivalents is not, in fact, eligible, and that more than 10 full-time equivalents together with average annual wages above $33,000 for 2025, or above $34,000 under the 2026 draft, will reduce the credit and can reduce it to zero.

The full-time-equivalent math on Form 8941 is not the applicable-large-employer math. Hours of service for each employee are capped at 2,080. Seasonal employees who worked 120 or fewer days during the tax year are entered as zero hours and zero wages for the count, although premiums paid for them are counted in the credit. Total hours are divided by 2,080 and, if the result is not a whole number, generally rounded down; if the result is less than one, you enter 1. Average annual wages are total wages divided by that full-time-equivalent count, rounded down to the next lowest multiple of $1,000. Certain owners and their family members are not treated as employees. For tax years beginning after 2013, the coverage generally must be a qualified health plan offered through SHOP, with a limited exception for eligible small employers in certain counties, and with a Hawaii waiver that, in the 2025 instructions, prevents employers in Hawaii from claiming the credit for plan years beginning after 2016. The credit period is a two-consecutive-tax-year period beginning with the first year the credit is properly claimed. The maximum credit is 50% of premiums paid for other eligible small employers, and 35% for tax-exempt eligible small employers, after the average-premium limitation, the size and wage reductions, and any state subsidy limitation. A tax-exempt employer's credit is also limited to certain payroll taxes.