Health insurance is one of the biggest line items in a small business budget. Many Florida employers with fewer than 25 employees do not realize there is a federal tax credit designed specifically to help them offer coverage: the Small Business Health Care Tax Credit, claimed on IRS Form 8941. If you qualify, the credit can cover up to 50% of the premiums you pay for your employees’ coverage for two consecutive tax years. As of October 19, 2026, here is how it works and how to tell whether your business qualifies.
This is general information only, not tax advice. This credit involves tax filings, wage math, and timing decisions, so confirm your specific situation with a CPA or tax advisor before you file.
What the credit is
The Small Business Health Care Tax Credit is a federal income tax credit for eligible small employers that contribute toward health insurance premiums for their employees. It was created under Internal Revenue Code Section 45R and is claimed by filing Form 8941, Credit for Small Employer Health Insurance Premiums, with your business tax return. Tax-exempt organizations claim it as a refundable credit on Form 990-T. The credit counts toward your general business credit, which also means carryforward and carryback rules can apply if you cannot use it all in one year.
The maximum credit is 50% of the premiums you pay for qualifying employees for for-profit businesses, and 35% for tax-exempt organizations. Most businesses will receive less than the maximum because the credit phases down as headcount and average wages rise.
Do you qualify? A four-point checklist
All four conditions must be met in the same tax year:
1. Fewer than 25 full-time equivalent employees
The IRS calculates full-time equivalents (FTEs) by dividing the total hours of service you paid during the year by 2,080, then rounding down to the next whole number. Part-time hours count toward the total. Certain people are excluded from the count: sole proprietors, partners, S-corporation shareholders who own more than 2%, their family members, and seasonal workers who work 120 or fewer days during the year. Notably, these exclusions often help businesses qualify, since owner wages tend to be the highest.
2. Average annual wages below the inflation-adjusted cap
Average wages per FTE must fall below an IRS threshold that is adjusted for inflation each year. For tax years beginning in 2026, the lower threshold (where the full credit applies) is $34,100 per Revenue Procedure 2025-32, and the credit phases out entirely at $68,200. The 2027 inflation adjustment had not been published as of October 19, 2026, so use the 2026 figures as your planning guide and confirm the 2027 numbers with your tax advisor. Average wages are calculated as total wages paid divided by FTEs, and the result is rounded down to the nearest $1,000 on Form 8941.
3. You pay at least 50% of the self-only premium
The employer must pay a uniform percentage of at least 50% of the premium cost for each enrolled employee’s health insurance. The calculation is based on the self-only (single) premium, not family or dependent coverage.
4. Coverage purchased through the SHOP marketplace
The plan must be a qualified health plan purchased through the Small Business Health Options Program (SHOP) marketplace, or through direct enrollment where available in your state. Plans bought off-exchange do not qualify. SHOP enrollment is available year-round, not just during a set open enrollment window.
How the credit is calculated
The credit uses a sliding scale. The full 50% credit goes to employers with 10 or fewer FTEs and average wages at or below the lower threshold. The credit shrinks as FTE count rises toward 25 and as average wages rise toward the upper threshold. At 25 FTEs or at the upper wage limit, the credit is zero.
A simple example illustrates the scale. An employer with 10 FTEs, average wages of $30,000, and $60,000 in qualifying employer-paid premiums could receive up to $30,000 in credit for the year. An employer with 20 FTEs and average wages of $55,000 would receive a smaller credit on the same premium spend, because both phaseouts reduce the rate. Your actual credit is computed on Form 8941.
The two-year clock
The credit is available for only two consecutive tax years, and the clock starts the first year you claim it. Starting it in a year when you barely qualify wastes one of your two opportunities. Because the thresholds, headcount, and contribution levels can shift year to year, it pays to project eligibility for the following year before filing the first claim.
Common mistakes to avoid
- Counting owners and family members in the FTE total. They are excluded from the FTE count, the wage calculation, and the credit itself. Recalculate without them before deciding you are over the limit.
- Missing the SHOP requirement. Employer-paid premiums for off-exchange small group plans do not qualify, even if every other condition is met.
- Uneven contribution percentages. The 50% employer contribution must be uniform across enrolled employees. Special billing arrangements have additional rules.
- Assuming you no longer qualify because you grew. Seasonal workers under 120 days are excluded, and part-time hours often produce a lower FTE count than employers expect. Run the 2,080-hour math before writing off the credit.
- Starting the two-year clock too early. If this year is a borderline year, consider whether next year’s projections make a stronger starting point.
Frequently asked questions
Can a sole proprietor with no employees claim the credit?
No. The credit is for employers with employees, and owner-only businesses do not qualify.
Do part-time employees count?
Yes, through the FTE calculation. All hours of service paid during the year are totaled and divided by 2,080, so two half-time employees roughly equal one FTE.
Does the credit reduce my deduction for premiums?
Yes. Your deduction for employer-paid health insurance premiums must be reduced by the amount of the credit you claim. Discuss the net effect with your tax advisor.
I offer coverage now but not through SHOP. Can I switch?
Possibly. SHOP enrollment is year-round in most states. Compare the net cost after the credit against your current plan, and confirm network and benefit fit before moving your group.
Does this credit interact with other benefits I offer?
It can sit alongside other strategies. For example, Coverage Babe’s CB Premier Benefits is a supplemental employee-benefits program, not insurance and not a replacement for major medical coverage. Plan and program documents control how any combination works.
How Coverage Babe can help
Coverage Babe is a Florida health insurance agency run by Sean Wigand and Lishele Wigand, Florida-licensed health insurance agents. We help Florida small businesses evaluate group health options, check whether a SHOP-eligible arrangement fits their workforce, and coordinate timing around plan years and tax deadlines.
Book a consultation to review your small business health coverage strategy. Learn more about Coverage Babe.
Compliance note: This post is general information only, not tax, legal, financial, or medical advice. Confirm eligibility, thresholds, and filing steps for Form 8941 with a qualified CPA or tax advisor. Coverage Babe’s CB Premier Benefits is a supplemental employee-benefits program, not insurance and not a replacement for major medical coverage; plan and program documents control. As of October 19, 2026; 2027 inflation-adjusted figures were not yet published. Florida only; Sean and Lishele Wigand are licensed in Florida and do not advise on coverage in states where they are not licensed.