The Small Business Health Care Tax Credit (IRS Form 8941)

This credit is one of the reasons a company with fewer than 25 full-time equivalent employees may want to look at SHOP coverage rather than only at an HRA or a non-SHOP group plan. It is not automatic, it is not available for every small employer, and we will not quote a credit amount in a proposal. A tax advisor should complete Form 8941.

HealthCare.gov states that enrolling in SHOP insurance is generally the way for eligible small employers to take this credit. An ICHRA or QSEHRA does not take the place of that SHOP requirement.

Who may be eligible

In outline, you are an eligible small employer for a tax year if you meet all three of the following:

1. You paid premiums for employee health insurance coverage under a qualifying arrangement. A qualifying arrangement generally requires you to pay a uniform percentage, not less than 50%, of the premium cost for each enrolled employee's health insurance coverage. The Form 8941 instructions describe limited exceptions for certain composite-billing and list-billing designs.
2. You had fewer than 25 full-time equivalent employees (FTEs) for the tax year. The Code's definition can include employers with "no more than" 25 FTEs, but the phaseout is written so that an employer with exactly 25 FTEs is not, in fact, eligible for the credit. You can have 25 or more people on the roster and still be under 25 FTEs if some of them are part-time. The IRS's example is an employer with 48 half-time employees, which is 24 FTEs.
3. You paid average annual wages below the inflation-adjusted limit described below.

FTEs are figured by adding hours of service for which you pay wages during the year (no more than 2,080 hours for any employee), dividing by 2,080, and rounding down to the next lowest whole number, except that a result below one is rounded up to one FTE. Average annual wages are total qualifying wages divided by FTEs, then rounded down to the nearest $1,000.

Certain owners and their family members are not treated as employees for the FTE and average-wage counts. The Form 8941 instructions exclude, among others, a sole proprietor, a partner, a more-than-2% S corporation shareholder, certain other substantial owners, and specified family members and household dependents of those people. Premiums for those individuals are generally not counted in the credit. Seasonal employees who work 120 or fewer days during the tax year are not counted in FTEs and average wages, although premiums paid for them are counted in the credit amount. A tax advisor should apply those rules to your ownership structure.

2026 and 2027 wage figures

The IRS publishes the section 45R wage figure each year. That figure is used both to phase out the credit and to determine who is an eligible small employer. Under § 45R(d)(1)(B), average annual wages may not exceed twice that amount.

The credit also phases out as the number of FTEs rises above 10, and it is reduced to zero at 25 FTEs. If both the wage phaseout and the FTE phaseout apply, the reductions are combined, and the credit can reach zero even below those outer limits.

These dollar figures come from IRS Revenue Procedure 2025-32 and Revenue Procedure 2026-35, read together with Internal Revenue Code § 45R. Form 8941 also requires average wages to be reported in $1,000 increments. Use the form and a tax advisor, not this table alone, to compute a credit.

How much the credit can be, and for how long

For tax years beginning after 2013, the credit is available only for a two-consecutive-tax-year credit period, beginning with the first year the employer (or a predecessor) claims it in the manner the instructions describe.

• For eligible for-profit employers, the maximum credit is generally 50% of premiums paid and is claimed as part of the general business credit.
• For eligible tax-exempt employers described in section 501(c) and exempt under section 501(a), the maximum credit is generally 35% of premiums paid, is limited to certain payroll taxes, and is claimed as a refundable credit on Form 990-T.

The credit can also be reduced by limitations based on adjusted average premiums and by state premium subsidies or tax credits. None of those reductions can be computed from a website form.

Hawaii, and counties without SHOP plans

The IRS Form 8941 instructions have stated that Hawaii has a section 1332 State Innovation Waiver, and that employers in Hawaii cannot participate in the SHOP Marketplace or claim this credit for insurance premiums paid for health plan years beginning after 2016. Confirm the current-year status in the latest Form 8941 instructions before you plan around the credit.

The instructions have also provided limited relief for eligible small employers in counties where SHOP plans were not available, if other conditions were met. That is a current-year, location-specific question for a tax advisor, not a rule we will generalize here.

How we help

We will tell you whether the company appears to be in the FTE and SHOP-eligibility range, and we will help you enroll in SHOP coverage if that is the recommended structure. We will not prepare Form 8941, and we will not treat a possible credit as a reason to ignore a better benefits design. Your tax advisor owns the return.

See if the credit belongs in our SHOP discussion