The Affordable Care Act (ACA) established the Small Business Health Care Tax Credit to assist small employers with the premium cost of providing group health (medical) coverage for their low- or modest-income workers.
Premium subsidies are available for small businesses meeting certain criteria:
- Have fewer than 25 full-time-equivalent employees.
- Pay average annual wages of $50,000 or less, subject to indexing for inflation as follows:
- For tax year 2022, $57,400.
- For tax year 2023, $61,400.
- Offer a qualified group health plan to which the employer contributes at least 50% of the employee-only plan cost.
The Small Business Health Care Tax Credit works on a sliding scale, so the smaller the employer, the larger the credit. Currently, the maximum credit is 50% for small businesses or 35% for small tax-exempt entities. The credit is available to eligible employers for two consecutive years.
Businesses that do not owe taxes in a particular year still may claim the tax credit. In that case, the business can carry the credit back or forward to other tax years.
Note: Employers in Hawaii generally cannot claim this credit for premiums paid for plan years after 2016.
The Internal Revenue Service (IRS) provides employers with extensive information about the credit, along with guidance on how to claim the credit. For details, see Small Business Health Care Tax Credit.
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