Running a small business means balancing costs and benefits for your team. The Small Business Health Care Tax Credit can cover up to 50% of premiums you pay in 2025. Here’s how you can claim every dollar—step by step, in clear terms, and with real numbers to guide you.
1. Confirm You Qualify
You qualify if all these apply:
· You have fewer than 25 full-time equivalent (FTE) employees.
o Count each full-time employee (30+ hours/week) as 1 FTE.
o Add part-time hours, divide the total by 120 per month to get additional FTEs.
· Your average annual wage per FTE is below the IRS limit (about $58,000 for 2025).
· You pay at least 50% of each employee’s premium for employee-only health coverage.
· You offer coverage to every full-time employee (no exceptions).
If you tick all these boxes, you can claim this credit for two straight tax years.
2. Calculate Your Credit
Your credit rate depends on two factors:
1. Number of FTEs (fewer means a higher rate)
2. Average wage per FTE (lower wages boost your rate)
For for-profit businesses, the top credit rate is 50%. It phases down as you approach 25 FTEs or the wage cap.
Sample calculation:
· FTEs: 10
· Total premiums paid: $60,000
· Credit rate: 50%
· Your credit: $60,000 × 50% = $30,000
If you have 20 FTEs and average wages of $55,000, your rate might drop to about 20%, yielding $12,000 credit on $60,000 in premiums.
3. Document Your Premium Payments
Only employer-paid premiums for employee-only coverage count. Do this:
· Enroll in a SHOP Marketplace plan or meet the small-group exception.
· Track premiums per employee each month.
· Exclude any family or dependent costs.
Keep these records:
· Monthly invoices showing employer payments.
· Payroll reports matching employee names, dates, and premium amounts.
Accurate files ensure you claim the full credit without IRS delays.
4. Claim the Credit on Your Return
To claim your credit:
1. Fill out IRS Form 8941 (“Credit for Small Employer Health Insurance Premiums”).
2. Attach it to your business tax return (Form 1120, 1065, 1040 Schedule C, or 990-T for nonprofits).
3. Enter your credit on the correct line of your return.
4. If you can’t use the full credit this year, carry it back one year or forward up to 20 years.
Tax-exempt employers get a refundable credit of up to 35% instead of 50%.
5. Stack State and Local Credits
Some states add their own small-business health credits on top of federal help. For example:
· California offers an extra SHOP credit through Covered California.
· New Jersey and Colorado run supplemental subsidy programs.
Action steps:
· Check your state exchange website for small-business credits.
· Apply through your state’s SHOP plan.
· Calculate your combined savings to compare net costs.
Combining federal and state credits can cut your premium costs by over half.
Client Anecdote: Real Savings in Action
Simon from Jacksonville paid $40,000 in premiums for his team. We verified his 10 FTEs and $25,000 average wage, securing the full 50% credit. He saved $20,000 on his 2024 taxes—and had extra cash to invest back into his business.
“That $20,000 credit made a huge difference,” Simon says. “It felt like a reward for taking care of my team.”
Next Step
Gather your FTE count, average wages, and premium invoices. Then email us at support@simplestartinsurance.com or call (786) 730-9658 for a free review of your 2025 credit eligibility. Let’s maximize your savings together.
