Small Business Health Care Tax Credit

If you are a small business or a tax-exempt organization, you should know that health coverage legislation enacted this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.

See Small Business Health Care Tax Credit for Small Employers at

Eligibility Requirements:

  • You must provide health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
  • Maximum firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • Average annual wage base. A qualifying employer must pay average annual wages below $50,000.
  • Both taxable (for profit) and tax-exempt firms qualify.


Amount of Credit:

  • Maximum Amount. The credit is 50 percent of a small business’s premium costs (35 percent for tax-exempt employers).  The credit is available to eligible employers for two consecutive tax years.
  • Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.


To Determine if Your Business May Qualify:

STEP 1: Determine the total number of your employees (not counting owners or family members):Full-time employees (enter the number of employees who work at least 40 hours per week) :
Add Full-time equivalent of part-time employees (Calculate the number of full-time equivalents by dividing the total annual hours of part-time employees by 2080.):
Equals Total Employees
If the total number of employees is fewer than 25, GO TO STEP 2.
      ____________+    ____________=    ____________
STEP 2: Calculate the average annual wages of employees (not counting Owners or Family Members)Take the total annual wages paid to employees:Divide it by the number of employees from STEP 1 (total wages ÷ number of employees):Equals Average WagesIf the result is less than $50,000, AND      ____________÷    ____________=    ____________
STEP 3: You pay at least half of the insurance premiums for your employees at the single (employee-only) coverage rate, thenYou may be able to claim the Small Business Health Care Tax Credit.

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