The small business health care tax credit allows eligible small employers that offer health insurance coverage to their employees to take a tax credit of up to 50 percent of the non-elective contributions they make toward the premium cost.

Small employers are required to participate in the Small Business Health Options Program (SHOP) Exchange to qualify for the tax credit. There are portions of the country where Qualified Health Plans (QHPs) are not available on the SHOP Exchange. So, the IRS previously provided transition relief for employers who were unable to access QHPs through a SHOP Exchange for the 2014, 2015, and 2016 tax years. The Treasury Department has now provided additional relief for an eligible small employer that properly claimed the credit for the 2017 tax year and tax years going forward.

SHOP Exchange guidance

To properly claim the credit, which may claimed retroactively, the employer must offer coverage through a SHOP Exchange or coverage meeting the requirements for relief under prior guidance.

To see whether a particular county had coverage available through a SHOP Marketplace for 2017, see the list of counties for federally-based SHOPS and the list of counties for state-based SHOPS.

To see whether a particular county has coverage available through a SHOP Marketplace for 2018 and beyond, employers may refer to the See Plans and Prices Tool on www.healthcare.gov/small-business.

When employers arrive at the site, they should select Get Coverage and then See Plans and Prices. Employers in states operating a state-based SHOP may visit their state-based SHOP’s website directly, or use the See Plans and Prices Tool on www.healthcare.gov/small-business to be redirected to their state-based SHOP to see whether a particular county has coverage available for 2018 and beyond.

The small business health care tax credit benefits employers that:

  • Have fewer than 25 full-time equivalent employees.
  • Pay average wages of less than $50,000 a year per full-time equivalent (indexed annually for inflation, for 2018, the amount is $53,200).
  • Offer a qualified health plan to its employees through a Small Business Health Options Program Marketplace (or qualify for a limited exception to this requirement).
  • Pay at least 50 percent of the cost of employee-only – not family or dependent – health care coverage for each employee.

The maximum credit is:

  • 50 percent of premiums paid for small business employers and,
  • 35 percent of premiums paid for small tax-exempt employers.
  • The credit is available to eligible employers for two consecutive taxable years.

Are you an eligible small employer? How to find out.

All the tools for determining if you are an eligible small employer and calculating the credit are available at this article on IRS.gov.  

For an eligible small employer that is not tax-exempt, the tax credit is only available to offset actual tax liability and is claimed on the employer's tax return as a general business credit. The credit applies against income tax, not employment taxes. For tax-exempt eligible small employers, instead of being a general business credit, the tax credit is a refundable tax credit limited to the employer's payroll taxes. IRS Form 8941 (Credit for Small Employer Health Insurance Premiums) is used by tax-exempt small employers to calculate the health care tax credit. 

Tax-exempt small employers that qualify for the tax credit claim the amount calculated using Form 8941 on Form 990-T (Exempt Organization Business Income Tax Return), which is used to report and pay tax on unrelated business income.

Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.