Small Business Health Care Tax Credit

The Small Business Health Options Program (SHOP) connects qualified employers to a new way to compare and buy health insurance. The counterpart to the individual marketplace, SHOP creates a large purchasing pool so small businesses can benefit from many of the advantages large employers enjoy.

The idea is to encourage more small businesses to offer health insurance to their employees, increasing the number of Americans who have coverage. To make coverage more affordable, tax credits are available to eligible small businesses that buy through the SHOP.

Health Net is providing a high-level overview of the tax credit, but we encourage our customers and brokers to use the IRS and HealthCare.gov as official resources.

Eligibility

Small businesses eligible for tax credits are those that:

have fewer than 25 full-time employees for the tax year,
pay employees an average of less than $50,000 a year, and
contribute at least 50 percent toward employee's premium cost – including any vision and dental coverage offered.

Small businesses that qualify for the full tax credit amount available are those with fewer than 10 full-time employees whose average wage is less than $25,000.

Tax credit amounts

The tax credit amount depends on factors such as the number of full-time employees and the amount of the employer's premium contributions. The tax credit is a percentage of insurance premium expenses.

Maximum tax credit by tax year: 2014 and later

Small business employers: 50%
Small business tax-exempt employers (e.g., charities): 35%

The tax credit is only available to small businesses that participate in the SHOP.

Several organizations have online calculators to determine tax credit eligibility and estimate amounts:

Again, the IRS has extensive guidance on other details such as how to claim the tax credit. Health Net does not provide tax or financial advice. We recommend that employer groups consult with their legal and financial advisers.