Small Business

Who Qualifies for the Small Business Health Care Tax Credit?

Updated on November 30, 2019


Updated July 2018. 

The small business health care tax credit is a great opportunity for those who qualify for it. The problem is, it may not be very clear whether you are eligible or not. Let’s clear up what this tax credit is, and what you need in order to qualify for it.

Keep in mind, even if you do not qualify for the tax credit, that doesn’t mean you can’t still find affordable group coverage to offer to your employees. eHealth has a variety of plans that aren’t offered on the government exchange, and that might still be in your price range even without qualifying for the small business health care tax credit.

What is the small business health care tax credit?

Before we dive into what type of small business may be eligible for this tax credit, let’s define exactly what it is.

The small business health care tax credit was created under the Affordable Care Act (ACA) to encourage small business owners—who are usually not required to offer health insurance if they have fewer than 50 full-time employees—to offer health insurance to their employees.

For qualifying small business owners, the government may supply you with a tax credit to help pay for your share of employee premiums. There are a few limits to this and qualifications you must meet in order to be eligible for the tax credit.

Rules for the small business health care tax credit

Below is the basic run-down of what you need to do in order to qualify:

  • You must pay average wages of less than $50,000 a year per employee, adjusted for inflation.*
  • You must purchase your insurance coverage via the Small Business Health Options Program (SHOP) Marketplace or through a licensed agent who can enroll you in SHOP plan.*
  • You must pay at least fifty percent of your qualified employee’s health care premium.
  • You must have fewer than 25 full-time equivalent employees (to get the maximum tax credit you must have fewer than 10 employees).

*This amount is per full-time (or full-time equivalent) employee. For 2017, this amount was $53,000 according to the IRS. This limit may change every year.

*As of 2018 SHOP plans can be written directly through the carrier with the help of certified brokers. eHealth has agents that are certified with SHOP and can enroll groups in plans that qualify for the small business health care tax credit, meaning you don’t have to leave eHealth in order to qualify for the tax credit.

Eligible for the tax credit or not, a group health insurance plan may be a good deal

Whether you qualify for the small business tax credit or not, your employees don’t have to miss out on the perks of a group health insurance plan.  Buying a group plan is oftentimes still less expensive per individual than each employee buying his or her own individual or family plan. This is because group plans may have better pricing than individual or family plans.  In addition, the employer typically shares the premium cost with the employees, so group plans may be more affordable to employees. You also will likely be able to deduct health insurance costs from your taxes as a small business owner. This deduction could help you offset the cost of contributing to your employees’ premiums. See more reasons why a small business should have a group plan here.

Small business tax deductions

If you do not qualify for the tax credit, there is also a deduction for employee premium payments. Some small business owners may be able to get both according to the IRS.

The deductions are also a great way to be able to purchase the plan that you want from a non-government, web-based health insurance broker like eHealth while still benefiting from tax incentives.

Some reasons why small business owners may want to stick with a licensed insurance broker such as eHealth include the range of options and the support even after purchasing the group plan. Rest assured, if you do not qualify for the health care tax credit, there is still a wealth of group health insurance plans to choose from. Also, keep in mind that there is no open enrollment period for group health insurance plans, so you can shop for a group plan and apply for the small business health care tax credit at any time of the year.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.

We’ll let you know when we publish anything new.