Updated October 2026 with current rules and numbers.
The Small Business Health Care Tax Credit can cover up to 50% of the premiums you pay for your employees (35% for tax-exempt employers) (IRS). Here’s how it works for 2026.
Who qualifies
- Fewer than 25 full-time equivalent (FTE) employees. Owners and their family members don’t count.
- Average annual wages under $68,200 for 2026. The full credit is available when average wages are $34,100 or less (2026 wage limits).
- You pay at least 50% of the premium for employee-only coverage.
- You buy coverage through the SHOP Marketplace (IRS).
You can claim the credit for only two consecutive tax years (IRS).
Short on time? Get a free business benefits quote and we’ll do the comparing for you.
How the amount is figured
The credit is largest for businesses with 10 or fewer FTEs and low average wages. It shrinks as you approach 25 FTEs or the wage limit (IRS Form 8941 instructions). It can also be limited by the average premium for small groups in your state.
Simple example
- 8 FTEs with average wages under $34,100
- You pay $40,000 a year in employee premiums through SHOP
- Possible credit: up to 50%, or $20,000, subject to the state average premium limit
The SHOP catch
You can’t enroll in a SHOP plan on HealthCare.gov. Instead, you sign up through a SHOP-registered agent or broker, or directly with an insurer (HealthCare.gov). We can tell you which SHOP plans are offered in your state.
How to claim it
- Use IRS Form 8941 to figure the credit (IRS).
- Attach it to your business tax return. Tax-exempt employers claim it on Form 990-T.
- Keep premium invoices and payroll records showing what you paid.
Not eligible? You still have options
Employer premium payments are generally deductible, and an ICHRA or a Section 125 plan can also save taxes. Talk with your tax professional and with us.
Want a quick benefits check for your business?
Tell us your team size and state. We compare group plans and alternatives, check the tax credit, and explain your options in plain English.
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Related guides
- Small group participation and contribution rules
- 7 myths about employer-sponsored health plans
- Can a married couple get group health insurance in Texas?
Sources
- IRS: Small Business Health Care Tax Credit and the SHOP Marketplace
- 2026 Small Business Health Care Tax Credit wage limits
- IRS: Instructions for Form 8941
- SmallBizHandbook: Small business health care tax credit (2026)
- HealthCare.gov: How to enroll in SHOP
Simple Start Insurance is a licensed insurance agency. This article is general information, not tax or legal advice. Carrier rules vary by state and insurer. Talk to a tax professional about your specific situation.
